CAPITAL BUDGETING MODEL WITH GROSS SPLIT PSC FOR SOUTHEAST SUMATRA GAS DEVELOPMENT PROJECT

• Main Author: PAULUS VIAN INDRASATWIKA (NIM 29316094), YOHANES
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/31756
• Institution: Institut Teknologi Bandung

The gas project in SES (Southeast Sumatra) was started in 2002, with the objective was to conserve the associated gas for future use and commercialize the non-associated gas for domestic gas sales. In 2004 CNOOC had gas sales agreement with PLN (Indonesia state electricity company). The contract was started in 2004 and will end in September 2018, when the contract of CNOOC in SES PSC area will expire. During the expiration of the existing contract, reserves evaluation suggests amount of tail gas that feasible to be commercialized for the next operator, alongside with existence of currently undeveloped gas field as a part of further development. <br /> <br /> <br /> However, the Government of Indonesia (GOI) has set SES PSC to apply the recently-announced gross split terms to the extension. In early 2017, the government has introduced a Gross Split PSC fiscal model for its upstream oil and gas industry, changing from cost recovery mechanism, with purpose is to make the exploration and exploitation activities more effective and efficient. Therefore, the new project should be economically feasible for the new operator. <br /> <br /> <br /> The major purpose of this study is to assess the economic evaluation of Southeast Sumatra PSC gas development project in order to find the suitable proposed scenario using Gross Split terms for next gas sales agreement. The project investment decision comprises of strategic viewpoint approach and economic evaluation. PESTEL analysis, Porter’s Five Forces Analysis, and SWOT Analysis was carried out to understand the business issue situation. Economic evaluation was carried out to calculate the commercial aspect of the gas sales agreement proposal. Four gas sales scenarios have been proposed in line with plan of further development. Scenario 1 and 3 options are no further development, and Scenario 2 and 4 options are developing new gas field. <br /> <br /> <br /> The economic calculation will be using the current gas price as the base case. Another case is calculated using gas price that linked to the ICP (Indonesian Crude Price). The GOI introduces another gas price measure, for the power sector. Gas prices for wellhead power generation were capped at 14.5% from ICP. Based on the economic evaluation of Gross Split PSC, Scenario 1 generates NPV $78,505.7M for Flat Gas Price case and $121,334.6M for Gas Price Linked to Oil Price case, Scenario 2 generates NPV $96,341.4M for Flat Gas Price case and $153,942.5M for Gas Price Linked to Oil Price case, Scenario 3 generates NPV $68,202.8M for Flat Gas Price case and $106,786.8M for Gas Price Linked to Oil Price case, and Scenario 4 generates NPV $97,624.8M for Flat Gas Price case and $177,152.3M for Gas Price Linked to Oil Price case. Scenario 4 has the highest NPV value, both in the Flat Gas Price case and the Gas Price Linked to ICP case. In the event of using gas price linked to the oil price, it is noted that the oil price condition is very uncertain. Based on the analysis, each scenario of the gas development project is resilience at low oil price. <br /> <br /> <br /> The gross split PSC has shown that the new fiscal term is more attractive in terms of gaining higher NPV compared to the previous cost recovery PSC mechanism in this study. This result will depend on the cost of capital expenditure to build new infrastructure development. The cost recovery PSC mechanism is more likely to recover the capital cost spent for investment credit, while the gross split PSC made the contractor bear all the expenditure in turn of higher share for the output.