The government is set to legalize crude oil extraction activities carried out by local communities across Indonesia, a move that could formalize the production of up to 20,000 barrels per day (bpd) and ensure its sales to State energy company PT Pertamina.

“Currently, around 15,000 to 20,000 bpd are being sold to unclear parties. It's better if the oil is sold to Pertamina,” Minister of Energy and Mineral Resources (ESDM) Bahlil Lahadalia, told a press conference at the ESDM Ministry office on Thursday, June 26, 2025.

The policy, he added, is part of the government's effort to empower local oil producers by offering them legal certainty and fair pricing, while also reducing illegal sales and improving national energy security.

“If the people are already doing a good job, let’s not make it harder for them. Let’s support them with the right regulations,” he said.

The legalization of these community-operated oil wells will be formalized through an upcoming Ministerial Regulation (Permen ESDM), according to the ministry. The regulation will outline the framework for three types of cooperation between local entities and oil and gas contractors (KKKS).

Speaking at a recent hearing with Commission VII of the House of Representatives, Acting Director General of Oil and Gas Tri Winarno said the regulation would define:

First, Operational or technological cooperation, including the utilization of idle wells, production wells, idle fields, or active production fields.

Second, Production cooperation involving wells managed by regional-owned enterprises (BUMD) or community cooperatives, directly involving local residents.

Third, Old well management cooperation, as already stipulated under Permen ESDM No. 1/2008, which covers production from aging oil fields.

The second category will specifically govern the community-operated wells, allowing them to legally produce under a four-year temporary operational period, during which they must comply with Good Engineering Practices (GEP)standards.

During this four-year grace period, no new wells will be allowed. Any violations, including the drilling of additional wells, will be met with enforcement actions or shutdowns. If operations fail to meet safety and technical standards within the period, the government will terminate the arrangement.

To support the transition, the ESDM Ministry is also expediting a nationwide inventory of community wells, with Tri stating that this process could be completed within the next 1 to 1.5 months.

“This inventory is critical to determining which wells can be included under formal production partnerships with cooperatives or BUMDs,” Tri cited.

Indonesia has long grappled with the issue of unregulated crude oil wells, often referred to as “sumur rakyat” or “people’s wells,” which are prevalent in regions like Java, Sumatra, and Kalimantan. While such wells provide livelihoods for thousands, they also pose environmental, safety, and revenue loss risks due to their informal nature.

“The ESDM Ministry hopes the new framework will strike a balance between community welfare and national energy governance, while also preventing illegal oil sales and enhancing Pertamina’s domestic crude supply,” Tri said.