PROJECT INVESTMENT PLAN EVALUATION USING DISCOUNTED CASH FLOW ANALYSIS (CASE STUDY OF LLP COMPRESSION PROJECT INVESTMENT PLAN AT TANGO FIELD, MEHACCA BLOCK)

• Main Author: Primasari, Indah
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/67507
• Institution: Institut Teknologi Bandung

This study performs a valuation analysis of LLP Compression in project investment plan at Tango Field in Mehacca Block. The LLP Compression investment project plan is currently under consideration for a Final Investment Decision (FID). The analysis is conducted by using quantitative methodology approach to evaluate 2 project scenario based on its cash flow. The outcome of financial valuation could assist management, as decision maker in the company, in determining whether the project is economically profitable, whether it should be executed, what scenario can generate maximum economic profit for the company, and also what financial factor affecting LLP Compression Project cash flow that should be managed to avoid negative financial results and to forecast project likelihood of success. Business situation analysis in this final project using external environment PESTEL and Porter’s 5 Forces Analysis to analyze an important set of external forces, and VRIO analysis to review internal factors that affecting company performance. For DCF analysis, with company discount rate at 10.2%, the Net Present Value (NPV) result is 1.12 Million USD for Scenario 1 and 0.91 Million USD for Scenario 2. Internal Rate of Return (IRR) for both scenarios are higher than company’s discount rate. Payback Period for both scenarios are also the same in year 2026, or 2 years after production. Profitability Index (PI) for Scenario 1 is slightly higher than Scenario 1 amounting at 1.07, while PI for scenario 2 is 1.03. All of the parameters from DCF gives positive result more than expected return, with scenario 1 that provide better value than scenario 2. Monte Carlo simulation is also used to provide a likelihood of having a negative NPV. Using the Microsoft excel, with 1,000 iterations, and four parameters (Production Gain, Operating Expenditure, Capital Expenditure, and Gas Price). The result is that both scenarios have probability negative NPV amounting 28% for scenario 1 and 30% for scenario 2, with probability minimum NPV result at negative 2.35 Million USD for Scenario 1 and negative 2.93 Million USD for Scenario 2. Based on Monte Carlo Simulation result, scenario 1 has slightly lower probability of generating negative NPV than Scenario 2. In summary, the LLP Compression Project investment plan is feasible to be executed for both scenarios, with scenario 1 provides higher economic profit than scenario 2, and it also generates slightly lower probability negative NPV than scenario 2. Since LLP Compression Project has probability of gaining negative NPV, hence several strategies to minimize project risk exposure are required to be determined before project execution.