Minerals Report - International Seabed Authority

field into production single-handedly, sharing the crude oil it produced with
the Government, and contributing to economic development. In this regard,
he said that a lot of the oil companies establish schools, community centres
and hospitals for local communities. He pointed out that there have been
problems associated with this obligation, with companies seeking to ascertain
why there are Ministries of Education, Health etc in Indonesia, and oil and gas
companies are being asked to build schools and hospitals.
Ambassador Djalal explained that the aspect of the system that deals
with the recoverable costs of the oil companies is the most difficult part. He
said that every penny spent by the companies has to be invoiced, resulting in
very meticulous bookkeeping and accounting. He said that the accounts are
maintained by Pertamina. He said that contractors, the Government and
Pertamina all have a right to audit the accounts. He said that the oil
companies do not lose any money, because all the money that they spend for
training, schools, hospitals etc, is recoverable under the production-sharing
system. After recovery of costs, Ambassador Djalal said that the balance of
production is divided under the scheme, which he described as complicated.
He said that the contract is normally for thirty years, but exploration is
for six years. He said that an additional four years might be granted for
exploration. He noted that for the four additional years to be granted, the
contractor must have funds that are committed for the work envisioned
during that period. With regard to relinquishment, Ambassador Djalal said
that twenty-five per cent of the area has to be relinquished within three years,
another twenty-five per cent within six years, and thirty per cent within ten
years. In the end, he said that the area open to exploitation by the company is
can only be up to twenty per cent of the original exploration area. He said that
at the production stage, another obligation is that petroleum production has
to start within six months of the contract date. Breach of this obligation, he
said, could result in the contract being invalidated.
He pointed out that his paper clearly spells out the obligations of
Pertamina and contractors. He emphasized the contractor has a right to
recover all operating costs from its production of crude oil, and as defined in
crude oil terms. He said that there is a separate agreement on how the
recovery of operating costs is to be implemented based on oil production. He
INTERNATIONAL SEABED AUTHORITY 875