Decision Analysis Process to Develop New Well Investment Under Production Sharing Contract (PSC) Transition Period: Case Study Block Alpha by PT XYZ

Abstract

With only remaining 3 years towards end of contract, PT. XYZ decided to stop capital investment on new developmental well drilling in 2018 while in fact, they are still contractor until August 2021 under PSC schematic. The decline in national production in 2019 was among others the result of this company’s move and will continue towards end of contract. Therefore, what is the alternative solution for the oil company to fulfil GOI request to keep continue new well investment towards end of contract in Aug 2021? This research aims to help PT. XYZ to find alternative economics new well drilling investment strategies to optimize the production and manage decline of block Alpha and oversee the continuation of investment prior to the end of contract by exercise and analyze solution alternatives and seek optimum potential agreement proposal as win-win solution. Using actual data from existing well production and other project typical data of new well development, this research will use PSC economic calculation to evaluate various alternative investment strategies which are Accelerated Depreciation Cost Recovery, Tax holiday and combination of both proposed alternative. In addition, Multi criteria Decision analysis (MCDA) approach is used to enhance decision quality. As the result, the selected investment strategy is expected to increase oil incremental of 1,5 million barrel of unrealized oil production until the end of contract in August 2021. The proposed alternative might provide additional contractor’s Net Present Value (NPV) of $10,7 million with DPI of 1.35. It is critical to have decision soon after the problem exist between PT. CPI and GOI where both parties must decide what agreement should be made to continue new well drilling investment. Once the decision timing become delay then PT. CPI and GOI will be facing critical situation to make an agreement. The decision potentially no longer considering project economics but expose to other irrelevant aspect which might have an impact to additional cost and resources.

Keywords: multi criteria decision analysis, production sharing contract, capital investment