“X” Oil Company intends to acquire an old natural gas field at East Kalimantan, which has been previously operated by another company. Based on subsurface study, the reserve can be produced for another 15 years of 20 MMSCFD gas. Since the existing surface production facility has been obsolete, the “X” Oil Company needs to construct the one to replace the existing facilities. An assessment of the new production facility should be done prior to set Gas Sales Agreement (GSA) with the buyer. The board of management “X” Oil Company needs to know whether their investment is worth doing or not. They also expect the payout period should be less than 5 years.
Root Cause Analysis
- Availability of old gas field reserve that still can be produced
- Existing facility can provide gas content information and estimation basis for the new facility construction, means easier engineering process for the new surface production facility.
- National Electricity Company is demand more energy supply for local power needs.
Construct a new Surface Production Facility to process 20MMSCFD natural gas and deliver to the buyer. And assessment needs should be carried out to evaluate the economics of the project and determine which parameter that is sensitive to investment value, also to establish a firm gas sales price for GSA purpose. Since the market gas price is USD $4 –$5, per MMBTU. Four difference gas price scenarios will be analyzed to obtain best economic parameter, they are: USD $4, $4.25, $4.5, and $4.75.
- MARR – 15%
Analysis and Comparison of Alternatives
Preliminary data and estimation
Table 1. Project Information
Table 2. Baseline Cash flow calculation
Table 3. Sensitivity Analysis Calculation
From the table 3, we can plot Spider graph as follow:
Figure 1. Sensitivity Analysis
Based on sensitivity analysis, we figured out that the revenue by terms of price is governed here. Hence the economic optimization and evaluation will be based on parameter gas price.. Using formula in spread sheet ,we obtain the the following.
Table 4. Gas Sales Price Scenarios
Figure 2. Gas Price vs IRR
Selection of Preferred Alternative
From Table 4, we can conclude that best scenario is at Gas Price USD $4.75 per MMBTU, refer to criteria NPV, IRR and Payout time. Then the project is worth doing, with the gas price $4.75 per MMBTU resulting NPV>0, IRR>MARR, and Payout Time less than five years.
Performance Monitoring & Post Evaluation of Result
- Scope of work should be well defined prior to project execution to avoid unnecessary change order which increase the Capital Investment value.
- Conduct project monitoring and supervision to ensure actual project progress and cost inline with the plan.
- Operation and maintenance management should be applied to avoid excessive operation cost.
Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick (1942), “Engineering Economy15th Edition”, Singapore: Prentice Hall, Inc.
Widjajono, Partowidagdo (2009), “Oil, Gas, and Energy in Indonesia: Problems and Policy Analysis”, Bandung: Development Studies Foundation.