INVESTMENT PROJECT ANALYSIS OF MARGINAL OIL RESERVES MONETIZATION: CASE STUDY OF ALPHA FIELD JOINT OPERATION PROJECT

• Main Author: Ibrahim, Zaki
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/85878
• Institution: Institut Teknologi Bandung

This thesis provides a comprehensive analysis of the feasibility of a joint operation for monetizing the marginal oil reserves in the ALPHA Field, projected for execution in 2024. The ALPHA Field, characterized by its marginal reserves, presents both an opportunity and a challenge in Indonesia's oil and gas sector. The main objective of this study is to evaluate whether the proposed joint operation is financially viable under current market conditions and financial assumptions, with particular attention given to updated financial metrics, risk considerations, and dynamic oil price forecasts. The analysis begins by applying a discount rate of 10% as the hurdle rate, a standard in the industry, while utilizing a Weighted Average Cost of Capital (WACC) of 10.25% for comparison against the Internal Rate of Return (IRR) results. Initially, the study validates the financial projections provided by an external consultant, which served as the baseline for the feasibility analysis. Under the consultant's assumptions, the project generated a Net Present Value (NPV) of USD 124,462.38 and an IRR of 13.13%, indicating that the project was expected to yield a modest return above the hurdle rate. The study then moves to an updated version of the financial model based on the latest available data for 2024. This update includes reducing the company’s share to 22.62% from 23.53%. These adjustments reduced the project’s financial outlook, resulting in an NPV of USD 78.039,35 and an IRR of 11,94%. A sensitivity analysis and Monte Carlo simulation were conducted to assess the project's robustness further. These tools identified the most sensitive variables impacting the project's financial performance and quantified the probability of achieving a negative NPV under varying conditions. In the final phase of the analysis, the study integrates a more sophisticated approach to forecasting oil prices by employing the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model. This model predicted oil price volatility over the project’s 10-year horizon, replacing the previously assumed flat oil price of USD 60 per barrel. The GARCH-based forecasts were then subjected to Monte Carlo simulation to capture the uncertainty in future oil prices, and the averaged outcomes were used as the basis for the updated financial projections. Incorporating these dynamic forecasts significantly improved the project’s economic performance, yielding an NPV of USD 1.714.768,88 and an IRR of 62,66%. This marked increase in the project's value underscores the importance of using advanced forecasting techniques in financial modeling for oil and gas projects. The findings of this thesis suggest that the ALPHA Field project remains financially viable under the current assumptions but with significant sensitivity to oil prices and production levels. The enhanced NPV and IRR results, especially with the GARCH-based forecasts, highlight the project’s potential for generating substantial returns. However, the sensitivity analysis reveals that even slight variations in critical variables could lead to significant changes in the project's financial outcomes, emphasizing the need for diligent risk management throughout the project's lifecycle. Based on these insights, the thesis concludes that while the ALPHA Field project is feasible, its success depends on effective risk mitigation strategies. Recommendations include adopting advanced reservoir management techniques to optimize production, stringent cost control measures to manage capital expenditures effectively, and using hedging strategies to stabilize revenue streams amid oil price volatility. Additionally, the thesis advises continuous monitoring and regular updates to the financial models to adapt to changing market conditions and operational realities. This study contributes to oil and gas project management by offering a detailed financial assessment and risk analysis of joint operations in marginal fields. It provides valuable insights for decision-makers, emphasizing the importance of aligning financial strategies with the risks and opportunities inherent in such projects. The findings underline the critical role of dynamic financial modeling in ensuring that investments in marginal fields are profitable and sustainable.