Compliance of the Indonesian Upstream Oil and ...

Compliance of the Indonesian Upstream Oil and Gas Sector with ESG Implementation

Oil and natural gas production, which remains the backbone of Indonesia's energy sector, still predominantly supports national energy demand. However, the current reality is that national oil and gas production continues to fight against the rate of natural decline because large oil and gas fields in Indonesia have entered a mature phase. Therefore, massive exploration efforts to find new oil and gas reserves must be carried out to achieve the government's targets of increasing production and reducing oil and gas imports. Unfortunately, parties outside the energy sector often view this situation as counterproductive to effective environmental management efforts. As an extractive industry, the oil and gas sector is frequently perceived as a "dirty" industry that negatively impacts environmental management and the communities around its operational areas. This perception often overlooks fundamental factors that are mandatory in upstream oil and gas operations worldwide, such as Health, Safety, and Environment (HSE).

In fact, companies in the upstream oil and gas sector have proven to be highly compliant with the principles of ESG (Environmental, Social, and Governance) in conducting their operational activities. Compliance with ESG is now not only a part of daily activities but has also become a requirement for obtaining funding or investment, because some global investors and financial institutions have now included ESG compliance as a mandatory requirement for companies before they can apply for funding for their projects. From the perspective of investors or financial institutions, funding or investment will only be channeled to projects that have an excellent and demonstrably stable ESG "report card." Therefore, ESG has transformed into a critical issue in long-term business management, such as in the oil and gas sector.

A stringent assessment or audit system ensures compliance with ESG in the Indonesian upstream oil and gas sector. For the Environmental (E) aspect, compliance is measured through the assessment standards of the Corporate Performance Rating Program in Environmental Management (Proper), which is under the control of the Ministry of Environment of the Republic of Indonesia. The Proper program has various levels, ranging from the Black Category, which is the lowest, to the Gold Category, which represents the highest standard. The fact is that not a single company in the Indonesian upstream oil and gas sector is categorized as the Black Category or the Red Category. This distinction demonstrates the sector's superior environmental protection compared to other sectors.

In a global era that demands all sectors participate in reducing carbon emissions to prevent the Earth's temperature from rising by more than just 1%, the upstream oil and gas sector has promptly implemented Carbon Capture Storage (CCS) technology. It is believed that the application of CCS for carbon originating from within and outside the oil and gas sector can support the Indonesian government's target of achieving Net Zero Emission (NZE) by 2060. To support the implementation of CCS, the government has also issued several regulations through Presidential Regulations (Perpres) and Ministerial Regulations (Permen). Not only concerning carbon emission management, but the upstream oil and gas sector also consistently ensures that all their operational activities, both at the exploration and exploitation stages, are carried out carefully and with attention to the surrounding environment. For instance, the sudden passage of a school of dolphins through the activity area can temporarily halt marine seismic survey activities. Similarly, for other activities, oil and gas companies are required to prepare environmental management analysis studies, ranging from UKL/UPL (Environmental Management Efforts and Environmental Monitoring Efforts) and AMDAL (Environmental Impact Analysis) to Environmental Permits.

Regarding the social (S) aspect, the oil and gas companies are currently actively implementing community development programs. These programs, encompassing economic, educational, and health fields, target the communities surrounding the operational areas. These programs have reportedly succeeded in transforming previously remote areas into developed areas with better educational facilities and infrastructure, as well as driving the local economy, as seen in the Dumai and Duri regions of Riau Province. In addition, the upstream oil and gas sector actively creates broad employment opportunities and provides job opportunities for the nation's youth, as is the case in the Tangguh Field, Papua, operated by bp.

At the same time, for the Governance (G) aspect, or compliance, both global and national oil and gas companies follow strict rules related to their work in the upstream oil and gas sector. The company's internal level, along with the related ministries and government institutions, oversees this compliance on a tiered basis. Within the operational scope, oil and gas companies must also follow the Operational Guidelines (PTK) issued by SKK Migas as the regulator for upstream oil and gas activities in Indonesia. Compliance with these PTKs is mandatory and covers various matters, including the procurement of goods and services used in the company's operational activities.

Ultimately, the success of increasing oil and gas production to meet national energy needs by attracting global investment to Indonesia for massive and aggressive exploration activities will be highly determined by the role of all stakeholders in the Indonesian upstream O&G sector in implementing these three ESG pillars.