41 Chapter IV Result and Discussion 4.1 Analysis 4.1.1 Business Environment Analysis 4.1.1.1 PESTEL Analysis 1. Political Political is the biggest factor in upstream oil and gas business activity because every activity is highly regulated in the regulation that issued by the Government of Indonesia (GOI). According to the political system in Indonesia, the election of presidential is conducted every five years and most of the time, every regime made different regulations that sometimes not corelated between one to another. This creates inconsistency regulation that influence investors to invest because the rapid changing in regulation. The political conditions in Indonesia and also the current world political conditions have major effect to the conditions of oil and gas industry in Indonesia which includes PT Energy Sumber Perkasa. The tensions between countries can affect significantly to the oil and gas industry. For instance, the war between Russia and Ukraine that have made energy crisis for some countries, the tension between USA and Iran, and the instabilities condition in middle east have major effect to the condition of oil and gas business as the middle east countries are big oil producer countries. The effect can be the disruption of the global oil price for PT Energy Sumber Perkasa. Oil and gas industry in Indonesia is an important sector in the process of developing a country as it supplies the energy and material to other industries so that the management in PT Energy Sumber Perkasa must be managed very well based on the regulation in Indonesia. Law No 22 of 2001 about oil and gas, provide a legal basis for national oil and gas 42 business activities. The previous regulations (Law No. 44 of 1960 about the oil and gas mining and Law No. 8 of 1971 about the oil and gas company) are not suitable with the current conditions and with the challenges that will be faced in the future. As stated in Law No. 22 of 2001, the upstream business activities focussed on processing, transportation, and storage that organized through fair, healthy, and transparent business competition mechanisms which is supported by Government Regulation No. 36 of 2004 that in 2009 has been changed into Government Regulation No. 30 of 2009. PT Energy Sumber Perkasa must follow the Production Sharing Contract (PSC) agreement which regulated by government, either it is gross split contract or cost recovery contract. According to Presidential Regulation No. 9 of 2013 about the management of oil and gas business activity, appointed SKK Migas to control upstream business activity in Indonesia. 2. Economy Economic condition has impacts on oil and gas industry. Economic growth drives the consumption of oil and gas meanwhile the economic decline reduces the consumption of oil and gas. The oil and gas industry has positive and negative impacts on other industries. For instance, if the oil price is high, it is great for the oil industry but a challenge for other industries meanwhile if the oil price decline, it is bad for the oil industry but good news for other industries. PT Energy Sumber Perkasa can use economic factor such as growth rate, inflation, consumer spending, exchange rate, interest rate to see their economic conditions. Oil and gas industry particularly PT Energy Sumber Perkasa creates thousand jobs for Indonesian that influence the GDP of Indonesia. Besides of that, oil and gas industry have a significant role in generating revenue for Indonesia as Indonesia has many oil and gas resources (Figure 4.1). However, in recent years the contribution of oil and gas industry to the revenue of Indonesia has decreased significantly as the 43 reserves of oil and gas and the production of oil and gas are declining as well. The revenue from oil and gas industry decreased by almost 80 % from Rp 216 trillion in 2014 (14% of revenue) to Rp 44 trillion in 2016 (2.8% of revenue), but the rising oil price improved the contribution of oil and gas industry in the revenue of 2017 and 2018. The decreased of oil price influence the oil and gas industry in the component of revenue and reached the lowest level in 2016 when the oil price fell below US$ 30/ barrel. Figure 4.1 Oil and Gas Revenue of Indonesia (Source: PwC Oil and Gas Guidance 2019) 3. Social-Cultural Nowadays the awareness about global warming that corelated with the consumption of carbon fuels has been increasing. The objective is to reduce the emission of using fossil fuel and transport to renewable energy. This current social trend affects PT Energy Sumber Perkasa significantly as the demand for fossil fuel has been substitute with the renewable energy. Together with the decline of oil price and the switch of consumer behaviour to use renewable energy, affect significantly to PT Energy 44 Sumber Perkasa. To survive, many oil and gas company lay off their employees. This also impact the ability of fresh graduate to get a job as there is no job vacancy in oil and gas company. Besides that, PT Energy Sumber Perkasa are demanded to apply new regulations in their operation activity in order to reduced carbon emission. With that demand from society, PT Energy Sumber Perkasa must increase their budgeting for the application of new environmentally friendly regulations in their business activities. 4. Technology Oil and gas industry is always attached with technology. The industry demands company to be updated with new technologies otherwise they will be behind from other oil and gas companies. Right now, PT Energy Sumber Perkasa concern about new technologies in order to increase the efficiencies of operations, drilling activities, exploration activities, monitoring. By using technology, PT Energy Sumber Perkasa can also reduce human error and improve safety. Upstream oil and gas business is industry that driven by technology. New technology and innovation make the business more attractive for investors and for PT Energy Sumber Perkasa it makes their work become more effective and efficient. This technology is very important especially in the service oil company such as Schlumberger, Haliburton, etc because they must provide something new to the oil company. Even though inside PT Energy Sumber Perkasa, the culture of innovation is supported but sometimes they need the support from the service oil company which has more knowledge in new technologies. 5.