CAPITAL BUDGETING OF MANDALA BLOCK UNDER INDONESIA’S GROSS SPLIT PRODUCTION SHARING CONTRACT

• Main Author: ARY PRIAGA (NIM 29316077), MOCH.
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/28985
• Institution: Institut Teknologi Bandung

Mandala Block is one of the oil and gas working area which will expiry in February 2018. In the Production Sharing Contract (PSC) extension, the government has stated Mandala Block will apply the Gross Split PSC based on Minister of Energy and Mineral Resources Regulation No.52/2018 and the Operator will be granted to PT NOC as National Oil Company. The purpose of the study is to evaluate the investment feasibility in Mandala Block during its Production Sharing Contract (PSC) extension under the Gross Split regime. We also analyze the effect of change of PSC regime by exercising the Cost Recovery PSC model. In order to analyze the impact a set of variables to the investment feasibility of Mandala Block, the sensitivity analysis is conducted to find the most influenced variable. The methodology used in this study is capital budgeting technique with discounted cash flow model based on PSC terms. The financial model is exercised by using secondary data from internal and external sources over the period of 2018-2038. The study demonstrates that Mandala Block is feasible under the Gross Split PSC scheme as reflected by positive net present value and IRR exceeds the discount rate. However, financial results under the Gross Split PSC are not quite attractive for the Contractor compared to the Cost Recovery PSC regime. In order to increase the investment feasibility of the Gross Split PSC in Mandala Block, our recommendations include (i) lower the capital and operating expenditure; (ii) provide an additional production share to PT NOC as operator of Mandala Block; (iii) accelerating the development of three gas prospective fields.