OPTIMIZING WORKOVER JOB TYPES AS ONE OF COMPANY STRATEGIES TO INCREASE SHORT-TERM INVESTMENT RETURNS UNDER LOW OIL PRICE

• Main Author: (NIM 29115496), JERMIA
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/28260
• Institution: Institut Teknologi Bandung

With oil price came down since 2014 and reached a 10-year low in 2016, Chevron corporation has re-focus its strategy to improve free cash flow. One of the focus is to reduce its capital and exploratory expenditure and improving short-term investment returns in the upstream business. The issue is how to translate this strategy in the subsidiaries. This thesis provides an opportunity to improve short-term investment returns in number of workover rigs and type of workover jobs in Best Company, one of Chevron’s subsidiary that is operating under Production Sharing Contract with the Government of Indonesia. <br /> <br /> Based on a theoretical framework on strategic style for oil industry (Reeves, Love, and Tillmanns, 2012), the SWOT of Best Company, and factors that affect the business of Best Company, the Author proposes an opportunity for the optimization in workovers activities. Workover activity is one activity that has short-term investment return. Different than capital project, the workover can be seen like capital or exploration, but without new asset to be depreciated. It is relatively large in total cost, but short-term in result and investment return, as it is immediately cost recovered (no depreciation) under PSC, and the oil gain is quickly produced. However, the investment return of this activities is often overlooked or not optimized either because it is reported as part of the operating expense and total production (instead of specific additional oil from doing the activities) or because the difficulties to measure and forecast the additional oil produced. <br /> <br /> This research is studying measures on workover activities that can be built into a quantitative predictive model to optimize the workover spending level for maximizing its efficiency or financial return. <br /> <br /> Once the measures defined, a model for additional oil production as the result of workover activities was built. A probabilistic workover’s oil gain and cost model using Monte Carlo simulation was chosen to incorporate uncertainties and risks. After the model built and tested, several mutually exclusive alternatives of number of rigs and further combination of job types are generated with the current number of rigs as the base case (do nothing case). The best scenario was also analyzed for several scenarios of company’s profitability threshold. <br /> <br /> Based on the research, it is shown that the rig count has almost linear relationship with NPV under similar profitability index for various spending when the job type mix remains the same. However, when the job type mix is optimized, it is shown that the company can increase its returns by focusing on pump upsize and water shutoff job types. In the case of Best Company, an optimization in the job type mix at the same number of workover rigs can be expected to increase the profitability index (marginal benefit) from 1.42 to 1.53 for the investment in workover business.