09 Nov 2026
From SKK Migas to BUK Migas: Indonesia’s Draft Oil and Gas Bill Sets Out a New Upstream Framework

Indonesia’s House of Representatives (Dewan Perwakilan Rakyat, the “DPR”) is working on a new Oil and Gas Bill (Rancangan Undang-Undang tentang Minyak dan Gas Bumi, the “Bill”). Once enacted, the Bill would revoke and replace Law No. 22 of 2001 on Oil and Gas, as amended by Law No. 6 of 2023 (“Law 22/2001”).

This newsletter discusses the text of the Bill harmonized by the DPR Legislation Body (Badan Legislasi) on 15 August 2026. The DPR adopted that text in plenary as a DPR-initiated bill on 18 August 2026. We understand from the recent reports, on 14 September 2026, the President issued Presidential Letter (Surat Presiden) No. R-45/Pres/09/2026. The letter appointed the Minister of Energy and Mineral Resources (“MEMR”), together with the Minister of Finance, the Minister of Investment and Downstream Industry, the Minister of State Secretary and the Minister of Law, to discuss the Bill with the DPR. The DPR has assigned the discussion to its Commission XII. The Government aims to complete the DIM and submit it to the President by 22 October 2026, before detailed discussions with the DPR begin.

If passed in its current form, the Bill would significantly change Indonesia’s upstream oil and gas framework. Most public attention has focused on one change: the replacement of the Special Task Force for Upstream Oil and Gas Business Activities (Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi, “SKK Migas”) by a new Special Oil and Gas Business Entity (Badan Usaha Khusus Minyak dan Gas Bumi, “BUK Migas”). The Bill would also change the rules on domestic supply, exports and fiscal terms. These changes are relevant to holders of production sharing and other cooperation contracts (Kontrak Kerja Sama, “PSCs”), and LNG buyers and sellers.

1. Key Changes

Replacement of SKK Migas by a business entity created by law

Under Law 22/2001, upstream activities were first managed by BP Migas, a state-owned legal entity created by that law. In 2012, the Constitutional Court dissolved BP Migas in Decision No. 36/PUU-X/2012. SKK Migas then took over its functions as a temporary arrangement. SKK Migas is a special government work unit set up by Presidential Regulation and supervised by MEMR. It is not a legal entity or a business entity, it is funded through the state budget, and it acts on behalf of the Government rather than holding upstream rights in its own name.

The Bill takes a different approach. BUK Migas would be a business entity created by the law itself and would report directly to the President, rather than sit under MEMR. It would have a seven-member supervisory board and a board of directors appointed by the President. Unlike SKK Migas, BUK Migas would have its own capital and operating budget. These would come from state assets in the upstream sector and from income earned through its own activities. In other words, BUK Migas would look more like a state-owned company than a government agency. The Bill sets out only the broad structure. Many details on governance, oversight and operations would be left to a Presidential Regulation.

This means that the counterparty to PSCs would become a state-owned business entity with its own assets, income and balance sheet. It remains to be seen whether, and how, the Government would stand behind BUK Migas, for example on counterparty risk, sovereign support and the enforcement of contractual rights and obligations. The Bill does not address these points, and they are unclear at the moment.

A larger role for BUK Migas in upstream activities

The Bill would give BUK Migas the upstream business authority delegated by the Government. Its tasks would include managing working areas, selecting contractors, signing PSCs, selling its share of production and taking participating interests in working areas. The Bill also states that BUK Migas would carry out all upstream business activities, and may offer a working area to a contractor where it cannot carry out those activities itself.

Read together, these provisions appear to place BUK Migas, rather than private contractors, at the center of upstream development. However, the Bill also describes BUK Migas as developing working areas through cooperation with contractors. It is therefore not yet clear how often, and on what basis, working areas would be offered to contractors in practice. This may become clearer in the implementing regulations or during the DPR discussions. Investors are advisable to closely monitor how this develops, as it could affect how future working areas are awarded and the negotiating position of private investors.

Ministerial role, approvals and working areas

Much of the existing approval process would remain the same. MEMR would continue to set policy, determine working areas and approve the first plan of development for a field. BUK Migas would take over SKK Migas’s day-to-day role, including approving work programs and budgets.

The Bill would also set clearer rules for extending PSCs. A contractor would apply to BUK Migas at least five years before expiry, BUK Migas would respond within one year, and each extension could last up to 20 years.

In addition, the Bill would allow one company to hold more than one working area. This is a departure from the “ring fencing” provision under Law 22/2001, which allows only one working area per company and requires a separate legal entity for each additional working area. From the Government side, this ring-fencing rule prevents costs from one working area from reducing the State’s share in another and ensures that revenue is allocated clearly between the central and relevant regional governments.

Allowing one company to hold several working areas could give investors more flexibility in managing their portfolios. However, the Bill does not say whether costs could be combined across working areas for cost recovery purposes. This appears to be left to implementing regulations. 

Domestic supply and export quotas

The Bill would give the Government more room to prioritize domestic supply. Under Law 22/2001, as modified by the Constitutional Court, contractors must supply 25% of their share of production to the domestic market. The Bill would change this to “at least 25%”, with details to be set by Government Regulation. This would allow a higher percentage to be set later, although the Bill itself does not set one.

The Bill would also allow the Government to set gas export policy and export quotas once domestic needs are met, based on the national gas balance and the gas infrastructure master plan. Exports of the State’s share of oil and gas would be carried out by BUK Migas.

These changes could give the Government more control over the volumes available for export. The Bill does not say how a higher domestic supply obligation or export quotas would apply to existing PSCs, existing export approvals or long-term sales contracts. Investors in LNG and export-oriented gas projects should keep these points in view.

Fiscal terms

The Bill would, for the first time, deal with cost recovery in the law itself. Contractors would pay capital and operating costs first and recover operating costs under their PSC once commercial production begins. The Bill lists the minimum categories of recoverable costs: exploration costs, exploitation costs, the cost of moving oil and gas from the production point to the delivery point, and reclamation or post-production restoration costs. If a working area does not reach commercial production, the contractor bears all costs. This may give more legal certainty than the current position, where cost recovery is mainly governed by implementing regulations and the PSC itself.

Article 48 of the Bill states that a contractor that is already producing oil or gas is “only required to pay” income tax, land and building tax, and non-tax state revenue. Non-tax state revenue would consist of the proceeds from selling the State’s share of oil and gas, bonuses, and other proceeds from upstream activities. BUK Migas would collect this revenue and pay it into the State treasury, and further details would be set by Government Regulation. By comparison, Law 22/2001 also lists import duties, excise, and regional taxes and levies. It is not yet clear whether the shorter list in the Bill is intended to remove those other charges for producing contractors, or how it would apply to existing PSCs. This will depend on the final text and the implementing regulations.

The Bill also does not appear to carry over the current rule that allows a PSC to choose between the tax rules in force when the PSC is signed and the tax rules in force from time to time (commonly known as the “nail down” option).

On balance, the Bill would give cost recovery a firmer legal basis, but may reduce the statutory tax stability available to future PSCs. This will matter to investors in long-term projects, where tax certainty is central to project economics and financing.

Transition from SKK Migas to BUK Migas

The Bill provides for a transition from SKK Migas to BUK Migas. BUK Migas would be established within one year after the law is enacted, either as a new body or by appointing an existing oil and gas state-owned enterprise. SKK Migas would continue to operate until then. Existing PSCs would remain valid until they expire. Once BUK Migas is established, the rights and obligations of SKK Migas under existing PSCs, and under other contracts related to those PSCs, would transfer to BUK Migas automatically. Existing implementing regulations would continue to apply as long as they do not conflict with the new law.

The Bill therefore appears designed to keep existing PSCs in place and avoid disruption to ongoing operations. However, several transition issues are not addressed. These include the treatment of existing export approvals, gas allocation decisions, SKK Migas’s internal guidelines, and whether existing PSCs would keep their current tax election. These issues are likely to be raised during the DPR discussions.

2. ABNR Commentary

If enacted in its current form, the Bill would be the most significant change to Indonesia’s upstream oil and gas sector since SKK Migas was set up. Existing PSCs would be preserved, and much of the day-to-day approval process would stay familiar. However, BUK Migas would move to the center of upstream activities, and the Government would have a larger role in domestic supply and export allocation.

At the same time, the Bill leaves many important questions open. These include the detailed governance of BUK Migas and the extent of any Government support for it, how working areas would be offered to contractors, the treatment of existing export approvals and gas allocations, and the status of SKK Migas’s guidelines. Many provisions also depend on implementing regulations that are not yet available. The Government’s approach on these points and the following DPR discussions will therefore be important in shaping the final law, and the text may change significantly before enactment.

ABNR will continue to monitor the legislative process and any implementing regulations that follow.

By partners Emir Nurmansyah (enurmansyah@abnrlaw.com) and Mahatma Hadhi (mhadhi@abnrlaw.com).

This ABNR client alert is intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. It does not constitute legal advice and should not be relied upon as such. ABNR accepts no liability of any kind in respect of any statement, opinion, view, error or omission that may be contained in this update. You are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could affect your rights and obligations under Indonesian law.