SPE-193979-MS

Policy and Institution of Offshore Platform Decommissioning in Indonesia

Oil and Gas Upstream Industry to Improve the Performance of Navigational
Safety and State-Owned Asset Management

Sari Amelia and Yusuf Latief, University of Indonesia; Noor Amila W. A. Zawawi, Universiti Teknologi Petronas;
Achmad Jaka Santos, University of Djuanda

Copyright 2018, Society of Petroleum Engineers

This paper was prepared for presentation at the SPE Symposium: Decommissioning and Abandonment held in Kuala Lumpur, Malaysia, 3 - 4 December 2018.

This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents
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Abstract
The development of offshore upstream oil and gas industry in Indonesia was established in 1971 through
the discovery of Arjuna Field in Nothern Java Sea by Atlantic Richfield Indonesia, Inc. (ARII). In 2017,
637 offshore platforms are installed in Indonesian water. Of these, 601 platforms are active and 36 of
them are not. Furthermore, 17 of ready to be decommissioned platforms are now in write-off process.
A research is conducted to study the policy and institution of offshore platform decommissioning with
objective to improve the performance of navigational safety and state-owned asset management. Data of
accidents in offshore installations showed some accidents between ship and production facility. These
number of accidents in the water region is the key performance indicator (KPI) of authorized institution
in Marine Affair which is related to navigational safety. Meanwhile, from state-owned asset management
perspective, the success of offshore platform decommissioning will broaden the spectrum of experience of
respective institutions, especially in area of Oil and Gas Asset Management. The study is part of applied
research which utilized qualitative and quantitative methods. For pilot study, a stakeholder analysis was
conducted to identify the key stakeholders of the offshore platform decommissioning program. Six variables
were highlighted as latent variables in offshore platform decommissioning: (1) policy, (2) institution, (3)
decommissioning method, (4) financing, (5) performance of navigational safety, and (6) performance of
state-owned asset management. A conceptual framework was developed for modelling how each variable
linkage to build an interaction model between policy, institution, decommissioning method, and financing
to improve the performance of navigational safety and state-owned asset management. Structural Equation
Model Partial Least Square (SEM PLS) was adopted for this purpose.
Keywords: offshore platform, decommissioning, navigational safety, state-owned asset management

Introduction
An increasing number of producing oil and gas fields are nearing depletion or reaching the economic
limits of extractability in the coming years. Thus, closure activities are expected to increase. Temporary
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shutdowns may also incrase due to cyclic nature of these industries, fluctuations in commodity prices,
and other changing conditions of the world economy. In some cases, the extension of the productive life
of many oil and gas fields, the successive handovers of exploitation rights (i.e., changes in operators), or
the increasing exploitation of resources in areas with higher political or institutional risks, may further
complicate issues of accountability for this phase of the project cycle. For these reasons, World Bank
designed a set toolkit that was principally designed for governments of resource-rich countries, specifically
technical and decision-making staff with different level of experience within the regulatory authorities,
institutions and ministries that are responsible for: administering mineral resources and oil and gas extraction
contracts; issuing environmental permits for exploration, exploitation, decommissioning and closure; and
ensuring that legal, financial, and technical measures are in place to address temporary shutdowns as well
as complete decommissioning and closure at the end of the productive life of oil and gas operations (World
Bank, 2009).
World Bank organized core components of a practical, effective and flexible approach that governments
may adopt or adapt in the process of identifying and managing decommissioning and closure needs as
described in Figure 1 below. The figure shows that policy, legal and regulatory framework at the top of
the core components.

Figure 1—Core components of decommissioning and closure program (World Bank, 2009).

Theoretical Study
In 2004, over 6000 large offshore platforms extract oil and gas from the worldwide continental shelf.
This ubiquity gives marine policy issues surrounding activities of the offshore oil industry a cosmopolitan
significance, includes the decommissioning. Decommissioning of an offshore platform is not a project, but
rather a process where regulatory agencies and the public have standing, and thus can demand a role in the
SPE-193979-MS 3

decision-making process. Hence, the final decisions regarding the decommissioning of offshore platforms
are based on consultation and mutual agreements among a number of agencies (Schroeder and Love, 2004).
Schroeder and Love (2004) divided platform decommissioning alternatives into 4 (four) general
categories: total removal (defaut option), partial removal, toppling, and leave-in-place. Article 5 Clause 5
of UN Convention on the Continental Shelf (UNCLOS) states that any installations which are abandoned
or disused must be entirely removed. Beside, Article 60 Clause 3 of UNCLOS states that any installations
or structures (in the exclusive economic zone) which are abandoned or disused shall be removed to ensure
safety of navigation, taking into account any generally accepted international standards established in this
regard by the component international organization. Such removal shall also have due regard to fishing, the
protection of marine environemtn and the rights and duties of the other states. Appropriate publicity shall be
given to the depth, position, and dimensions of any installation of structures not entirely removed (Martin,
2004). Meanwhile, Law of the Sea Convention which were issues in 1989 by the International Maritime
Organization (IMO) established IMO Guidelines and Standards for Removal of the Offshore Installations
and Structure on the Continental Shelf in the Exclusive Economic Zone (Martin, 2004). The major points
in the IMO Guidelines are:
1. The general principle is that all disused installations are required to be removed.
2. Installations in water depths of less than 75 meters or 100 meters after 1st January 1998, and weighting
less than 4,000 ton should be removed unless:
a. Not technically feasible,
b. Involving extreme cost, or
c. Constituting unacceptable risk to personnel or the marine environment.
3. An unobstructed water column of 55 meters must be left in the event of a partial removal.
4. All installations after 1st January 1998 are to be designed and built so that their entire removal is
feasible.
Offshore platform decommissioning in Indonesia is categorized as part of post production activities
(PPA). Refer to Ministry of Energy and Mineral Resources Decree No. 15/2018 about Post Production
Activity in Oil and Gas Upstream Industry, the PPA are financed by the PPA fund. The fund is reserved
by Oil and Gas Operator each semester in USD currency and transferred into appointed state-owned bank
(Code of Conduct (PTK) SKK Migas No. 40/2010 about ASR) i.e.: Bank Rakyat Indonesia Ltd., Bank
Negara Indonesia Ltd., and Bank Mandiri Ltd.
In response to maritime security and safety policy, navigational security and safety is related to a condition
that assure the security and safety of any activities in the ocean includes navigational activities, natural
resources exploration and exploitation, biological, and also environmental preservation (Kadarisman,
2017). Navigational route is stipulated with objective to assure the security and safety of navigation by
providing corridor for ships to sail across the water which is followed with designation for navigational
dangers (Kadarisman, 2017). Guideline of International Association of Marine Aids to Navigation and
Lighthouse Authorities (2017) about Navigational Safety within Marine Spatial Planning mentioned: (1)
constructions & maintenance traffic, helicopter landing areas; (2) the energy sector's use of the sea involves
both the production and transfer of energy; (3) facilities of energy production (cables, pipelines, offshore
constructions); and (4) national interests in relation to other coastal states as considerations of spatial demand
for oil and gas platforms. For this energy function, the relation with shipping are: (1) consideration of
(limited) co-use; (2) safety distance to fairways, routes, TSS, and marking of offshore facilities; and (3)
consideration of establishing a safety zone of (max) 500 meters around offshore constructions. In this
relation, marking of abandoned structures is one of the involved specific risk, beside damage to ship,
structure and environment after allusion and also visibility of floating and subsea structures.
4 SPE-193979-MS

Accordance to Indonesian Ministry of Finance Regulation No. 135/2009 about State-Owned Asset
Management from Oil and Gas Contractors, the type of asset management are: (i) direct selling without
auction, (ii) re-use by other party, (iii) hand-over, (iv) demolition, and (v) write-off. Of these, asset
management activity in offshore platform decommissioning relates most to write-off process. Some
challenges in oil and gas asset write-off process as described by Apriyadi (2009) are:
1. The Oil and Gas Operator and respective government institution are more focus in production and
marketing activities.
2. The state-owned asset write-off recommendation is not supported with complete, accurate, and clear
status of goods.
3. Time to proceed and follow up the write-off recommendation is relatively long and Oil and Gas
Operator is not interested to act.
4. A weak cross check includes track and trace process in Oil and Gas Operator because of there is no
standard operation procedure in state-owned goods write-off activity.
The theoretical study above is summarized in below figure.

Figure 2—Theoretical study based on research variables.

Methodology
The study is part of applied research which utilized qualitative and quantitative method. For pilot
study, a stakeholder analysis was conducted to identify the key stakeholders of the offshore platform
decommissioning program. Stakeholder analysis is needed to be taken since the right treatment of key
stakeholders will result in management efficiency. Further, the study focuses to the institutions and
ministries that are roled as policy authorities. The primary data is collected from the identified key
stakeholders, meanwhile the secondary is gathered through literature study and other references.
The research variables are explored through literature study and validated by interviewing representative
of respective stakeholders which have been involved in offshore platform decommissioning process for at
least 1 year. These are called latent variables and used as input to develop research conceptual framework.
The research methodology is summarized in Figure 3 below.
SPE-193979-MS 5

Figure 3—Research methodology.

Result and Discussion

Respondents of survey and interview in stakeholder analysis for offshore platform decommissioning in
this study are: (i) Directorate General of Oil and Gas, (ii) Directorate General of State-Owned Asset
Management, (iii) Directorate General of Marine Affair, (iv) Directorate General of Marine Spatial
Management, (v) Oil and Gas Operator, and (vi) experienced contractor in floating structure and subsea
pipeline decommissioning.
From stakeholder analysis, 5 (five) institutions and ministries below were identified as key stakeholder
in offshore platform decommissioning in Indonesia includes their role.

Table 1—Name of institution and ministries identified as key stakeholder.

Data of accident in oil and gas upstream offshore installation were collected from Directorate General
Oil and Gas. These data are shown in the following table. For confidentiality reason, the name of Oil and
Gas Operator is replaced with ‘KKKS #1’, ‘KKKS #2’, ‘KKKS #3, and KKKS #4’.
6 SPE-193979-MS

Table 2—Data of accident in oil and gas upstream offshore installation for period 2015 – 2017.

To complete the data with accident beyond the above period, secondary data below is also utilized as
reference for further analysis.

Table 3—Data of accident in oil and gas upstream offshore installation in 2010 and 2014.

In institution perspective, number of accidents in water region is one of the key performance indicator
(KPI) from Directorate General of Marine Affair, with target to reduce the number upto zero accident. Beside
navigational safety, the offshore platform decommissioning program is strongly related to the performance
of state-owned asset management. Refer to Indonesia Government Regulation No. 35/2004 Article 78
Section (1) about Oil and Gas Upstream Activities, offshore platform is the state-owned asset which only
able to be utilized by Oil and Gas Operator as per period of contract. Further, Article 81 Section (4) and (5)
of the regulation stated that in the end of contract, Oil and Gas Operator's goods and equipments shall be
hand-overed to government in order to determine its utilization policy according to law and regulation. The
state-owned asset management scope of work for this program is stated in Code of Conduct (PTK) SKK
Migas No. 007 the 3rd Book and described in figure below.
SPE-193979-MS 7

Figure 4—Oil and Gas Operator asset management scope of work (SKK Migas, 2013).

The state-owned asset management of upstream oil and gas industry brought the attention of respective
institution since 2008. For this year, authorized audit agency released recommendation for improvement
in asset inventory and valuation which then followed up by Directorate General of State-Owned Asset
Management in 2009 (Luthfi, 2013). In 2011, the asset inventory and valuation process were successfully
recorded for 74 asset of oil and gas operator (KKKS). Up to this day, an interconnected system for state-
owned asset management of upstream oil and gas industry has been established between Ministry of Energy
and Mineral Resources and Ministry of Finance (Figure 5). The interconnection system is expected to
synchronize the asset data in each institution, so that processing time for asset write-off recommendation
as one of constraint in offshore platform decommissioning (Apriyadi, 2009) can be reduced. The asset data
synchronization is also one of the finding issue from Primadona (2013) in internal control of government
agency in upstream oil and gas asset management.

Figure 5—Data flow of state-owned asset management in upstream oil and gas in Indonesia (DJKN, 2018).
8 SPE-193979-MS

During the in-depth interview in pilot study, the perspective of stakeholders in offshore platform
decommissioning in Indonesia were captured (Table 4). Pilot interview approach was also used by Dagbui,
Boateng, and Love (2017) for reviewing industry and government reports on the scale of nature of
decommissioning in UK North Sea.

Table 4—Perspective of key stakeholder for offshore platform decommissioning (Amelia et al., 2018).

The expectation to success of program was aligned with the core component of World Bank in Figure
1. Policy, legal, and regulatory framework is the first component that shall be planned by government in
decommissioning and closure program. In Talcott Parson's structural-functional theory, policy formulation
and technical planning includes the implementation are the indicator of institution's performance in
achieving its organization objective (Firman and Alam, 2015). The identified critical policy in offshore
platform decommissioning in Indonesia are related to navigational safety, financing, and state-owned asset
management.
There were various decommissioning methods had been developed world wide. By using scoring
technique for each criterion that affect the decision of decommissioning method in previous researches,
below critical factors were identified:
1. Environmental: (i) energy use, (ii) gas emission (CO2), and (iii) contamination (especially for oil
spill).
2. Socio-economy: economic viability (total cost).
3. Logistic requirements: (i) technology feasibility, and (ii) regulatory compliance.
In Indonesia, offshore platform decommissioning cost is divided in 2 (two) production sharing contract
mechanisms: as part of cost recovery or as component of tax deduction in gross-split contract. In both
SPE-193979-MS 9

production sharing contract mechanisms, it is treated as part of production cost. The identified critical
indicators for the amount of offshore platform decommissioning cost are:
1. Ratio of cost recovery to gross revenue.
2. Amount of Oil and Gas Operator royalty (Article 20 Section (2) Government Regulation No. 79/2010).
Accountability is one of the concerns in the good governance of government institution. This
accountability is related to providing information about activities and performances of government
institution to respective stakeholders. The accountability is categorized in 2 (two) types: (i) vertical and (ii)
horizontal. Vertically, the objective is to assure the check and balances mechanism. Meanwhile, horizontally,
it is applied to minimize the distortion between decided policies with the actual implementation. In state-
owned asset management from oil and gas upstream industry, this accountability is defined by below
performance indicators:
1. The increase of tax and non-tax income from oil and gas industry.
2. The reduction amount of cost recovery.
3. The improvement in the opinion of authorized audit agency for Government Financial Report.
From both literature study and interview, research variables below were derived: (1) policy, (2) institution,
(3) method, (4) financing, (5) performance of navigational safety, and (6) performance of state-owned asset
management. The conceptual framework below shows how each variables linkage to build an interaction
model between policy, institution, decommissioning method, and financing to improve the performance
of navigational safety and state-owned asset management. This conceptual framework describes detail of
research variables mentioned in the theoretical study (Figure 2) and it is developed as a model for further
data analysis and validation to investigate the critical factors in each variable. Before data analysis and
validation is conducted, hypothesis for each variable in theoretical study shall be defined. From hypothesys
definition, 2 (two) exogenous variables (X) and 4 (four) endogenous variables (Y) are found. The conceptual
framework is developed by adopting Structural Equation Model Partial Least Square (SEM PLS) and
described in Figure 6 below. SEM PLS is known as one of multivariate data analysis approach in statistics.

Figure 6—Conceptual framework of offshore platform decommissioning in Indonesia.

10 SPE-193979-MS

Round shape in the conceptual framework means latent variable in SEM PLS inner model, meanwhile
the square shape is symbol for indicator (manifest) variable in outter model. Detail of each indicator variable
as below.

Table 5—Detail of indicator in outter model.

Conclusions
From literature study and expert validation, there are 6 (six) important variables for offshore platform
decommissioning in Indonesia: (1) policy, (2) institution, (3) method, (4) financing, (5) performance of
navigational safety, and (6) performance of state-owned asset management. The stakeholder analysis also
shows the Ministry of Environment and Forestry as one of the key stakeholder in offshore platform
decommissioning, though from in-depth interview with the expert, it was found that this institution impact
is less significant than other variables. Further study in development of policy and institution for offshore
platform decommissioning in Indonesia is recommended to identify necessary corrective actions and
improvement, i.e. in updating any policy that released before gross split mechanism.

Acknowledgement
The authors wish to thank Sub Directorate General of Oil and Gas Upstream Safety, Directorate General
of Oil and Gas, Ministry of Energy and Mineral Resources for oil and gas upstream offshore installation
accidents which are presented in this paper.
SPE-193979-MS 11

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