Articles

Economic Feasibility Study of a Chemical Enhanced Oil Recovery Project in Indonesia Based on Conventional Discounted Cash Flow (DCF) And Real Option Valuation Model: Case Study at PT ABC

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Indonesia had become an oil exporter that is recognized by the world for many years and joined The Organization of Petroleum Export Community (OPEC) – an organization that controls petroleum production, supplies, and prices in the global market – in 1962. However, oil production in Indonesia has been decreasing from year to year, one of which is due to the lack of investment in the exploration of new oil wells in Indonesia so the majority of upstream oil and gas work in Indonesia is exploiting old wells which will naturally decline steadily. This resulted in Indonesia becoming a net import oil country in 2003. Therefore, additional operations are needed to maximize oil production from these existing wells, one of which is by conducting Chemical Enhanced Oil Recovery (CEOR). The main objective of EOR itself is to mobilize the remaining oil by enhancing the oil displacement and volumetric sweep efficiency. PT. ABC, a subsidiary of PT. XYZ (a state-owned company under SKK Migas and PT Pertamina supervision) which is engaged in the upstream sector in Indonesia, is assigned by the government to carry out one of the CEOR projects that have been determined by the Government. This research covers the economic feasibility of the CEOR Project based on the conventional Discounted Cash Flow (DCF) and Real Option Valuation (ROV) Model. The revenue-sharing policy used for the project economic calculation is the gross split method. The result of the economic analysis using the DCF method is the project is not economically feasible to run as the net present value (NPV) shows negative which is -2,911 MUSD. However, the real option valuation model helped increase the value to 11,416 MUSD by adopting a strategic option which is an option to delay and time flexibility into the project. As a result, the project could be economically feasible if the operation is deferred to the following year and the oil price is over 85.2 USD/BBL.

Increasing Company’s Profitability through Achieving Crude Distillation Unit Production Target at PT. XXYZ, Indonesia

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PT XXYZ is an oil and gas industry company that is a downstream company, namely a company that processes crude oil into various products that are ready to be transferred to the market. Oil and gas companies, especially PT XXYZ, are certainly faced with various challenges that need to be faced related to future business continuity, in the form of the challenge of substituting fossil sources with environmentally friendly energy followed by rapid technological developments. PT XXYZ is also faced with the challenge of always being able to respond to changes in demand in the market and able to maximize the production until distributing it to customers. PT XXYZ has a problem in CDU production which is not achieving the monthly production target. The company has loss 103.5 million barrels of products that can be produced which is equal to losing 8 million USD. The production monthly target is determined based on STS documents. Several factors that can affect production are quality of materials, quantity, unplanned shutdown/slowdown, operational limitation, and low intake. Based on the root cause analysis using the Ishikawa Diagram method, it is concluded that the main problem that may be solved by PT XXYZ is related to the supply activities and material readiness. Inventory management at PT XXYZ not implementing a policy to be able to control stock and avoid losses in inventory. PT XXYZ experienced stockout on various materials and the safety stock level tends to be stagnant and all materials have the same safety stock value. By carrying out inventory management using the Q-model, the company has a standard and policy for each crude oil material, so as to reduce the risk of stockout and hopefully will maximize the needs of CDU production. PT XXYZ gains more profits by saving 56.4 million USD in inventory cost and able to achieve the production target with 95% of service level.