Domestic

Along with the rising crude price in mid-year 2008, commodity prices like coal also experience a significant increase exceeding $ 100/ton whereby it is never expected before. However when global crisis occurred at the end of 2008, coal prices decreased […]

The era of high uncertainty of commodity prices requires an economic reassessment of many natural resource projects. Current conventional NPV analysis has a limitation in recognizing uncertainty during project life and some biased in its assumption, i.e.: It is assumed […]

(This article discusses how to determine the appropriate value of signature bonus and firm commitment in the bid proposal for block tender. This article had been presented in Indonesian Petroleum Association (IPA) Conference, session 15, date 19 May 2011 at […]

This paper had been presented in the 25th Pan Pacific Congress of Real Estate Appraisers, Valuers, and Counselors (Session: Mining Asset/Extractive Industries Valuation). Please see their website (www.ppc2010Bali.com)

we delivered  a topic: Utilizing oil and gas economic modeling framework for evaluating upstream oil and gas assets to enhance accuracy in decision-making in PSCs, joint operations or mergers For detail progamme and registration of this event, please see their […]

MGEI-IAGI is proudly arranging this luncheon talk that hopefully will enhance the valuation knowledge with the various techniques from conventional to modern methods for improved investment decision making. This event will launch a book ” A New Era of Project […]

– An Application of Dynamic DCF and Real Options Approach in the PSC Regime-
Petroleum valuation professionals have been actively investigating how to improve Discounted Cash Flow (DCF) valuation methods by better representing petroleum industry complexities in their cash flow models.
The focus of Dynamic DCF and Real Options (RO) methods is to asses the impact of the uncertainty of the oil price on the projects value and risk. The difference in their approach to adjusting project cash flow for risk gives the different results of the project value.
This paper examines the valuation of an oil field in the Indonesian PSC regime. Monte Carlo simulation is used to characterize the different exposures of the contractor and the government to the risky cash flow streams that they receive from the project. The results highlight that Monte Carlo simulation paired with the RO method is able to account appropriately for the differing exposures.
This paper makes the conclusion that RO is more likely to reveal a true picture of the worth of undeveloped reserves in Indonesia than other currently available techniquea. As such, it has the potential to form a proper basis for the negotiation of contract terms between the contractor and the Government of Indonesia, as a result of which development of the undeveloped reserves in Indonesia can be stimulated.

Abstract
Harga minyak yang tinggi hingga menembus $100/barrel tidak pernah diperkirakan sebelumnya. Hal ini kembali menyadarkan kita bahwa apapun mungkin terjadi meski menurut kita itu tidak mungkin beberapa tahun yang lalu.
Banyaknya proyek perminyakan yang terlambat untuk berproduksi karena belum disepakatinya kontrak perjanjian antara berbagai pihak yang terlibat dikarenakan hasil perhitungan keekonomian yang belum memuaskan, mengakibatkan proyek-proyek tersebut tidak mendapatkan keuntungan atas tingginya harga minyak yang terjadi saat ini.
Fakta bahwa industri perminyakan menghadapi ketidakpastian yang tinggi dimasa depan seperti harga minyak tentunya harus dipertimbangkan oleh para praktisi didalam melakukan studi keekonomian suatu proyek Migas.
Perhitungan keekonomian dengan menggunakan pendekatan statis menyebabkan banyak keputusan investasi pada waktu itu didasarkan pada asumsi harga yang sangat konservatif dan tidak memperhitungkan adanya volatilitas harga minyak ke depan. Hal ini menjadi salah satu sebab lambatnya keputusan investasi pada waktu itu.
Dalam teori keputusan investasi, perbedaan antara perhitungan net present value (NPV) tradisional dan real options adalah “timing of investment” dimana pada NPV tradisional peluang investasi adalah sekarang atau tidak sama sekali (now or never). Seperti apa yang kita lakukan apabila nilai NPV suatu proyek kecil atau negatif, maka kita akan langsung tunda investasi pada proyek tersebut. Namun demikian, kebanyakan investasi bukan “now or never, Dalam beberapa kasus, kriteria NPV yang kecil, tidak cukup dijadikan faktor untuk memutuskan agar proyek ini ditunda.
Dalam teori real options, penundaan investasi bukan merupakan keputusan yang efektif selama nilai proyek tersebut lebih tinggi dari nilai thresholdnya. Nilai threshold inilah yang dapat diperoleh dari metode real option dengan mempertimbangkan adanya volatilitas harga minyak.
Tujuan makalah ini adalah untuk melihat kemungkinan aplikasi teori real option dalam membantu keputusan investasi dalam proyek perminyakan di Indonesia
Makalah ini menghasilkan beberapa kesimpulan diantaranya real options dapat diaplikasikan dalam perhitungan keekonomian proyek perminyakan di Indonesia, serta nilai yang dihasilkan dari metode ini lebih memperlihatkan nilai yang sebenarnya dari proyek tersebut dibandingkan dengan menggunakan metode NPV tradisional.

Abstract
Whenever the Government opens the tender process for new PSC blocks, it is the government’s expectation that the contractor begins immediate investment in exploration activities and start exploitation soon after confirming commercial reserves. Ultimately, it is the government’s intention to maximize the revenue derived from these tender blocks for the greater benefit of Indonesia.
In terms of investment decisions, the primary difference between traditional net present values (NPV) analysis and real options analysis is the timing of the investment. NPV analysis suggests that the investment opportunity is “now or never”. Simply, make the investment now and the NPV is positive. But most investments are not “now or never”, and in these cases an NPV greater than zero is not sufficient for immediate investment. The option pricing theory tells us that immediate investment is not optimal unless well head prices are higher than the threshold price.
The objective of this paper is to examine how Real Options Analysis can help both the government and the contractor in analyzing the potential of undeveloped reserves.
This paper extends a model by Paddock, Siegel, and Smith (1988) to value undeveloped reserves in the Indonesian PSC regime
This paper makes the conclusion that the Real Options (RO) can be applied to the Indonesian PSC regime to value undeveloped reserves in Indonesia. The RO is more likely to reveal the real picture with regard to the value of potential exploration and the subsequent value of undeveloped reserves in Indonesia than any other currently available technique. Consequently, it has the potential to develop into a better basis for the negotiation of contract terms between the contractor and the Government of Indonesia. This in turn will allow for greater stimulation in the development of undeveloped reserves in Indonesia.

ABSTRACT
The high costs and risks associated with many oil and gas exploration projects often cause companies to seek partners to share those costs and risks before embarking on major expenditure programs.
A previous study of farm out analysis for block X in Medco has been done using deterministic model (Kristiono, 2005). This further study was conducted to optimize farm-out analysis using probabilistic model. A risked economic evaluation of a two pay zone prospect i.e. Zone A and B in that block illustrates how probabilistic simulation modeling and deterministic valuation and risk analysis techniques combine to provide useful insight to economic evaluation of a farm out opportunity.
One of the significant advantages of probabilistic methods is their ability to quantify downside risk in more detail than deterministic calculations. Analysis of the negative values in the calculated EMV distributions from the probabilistic method can yield significant insight into the downside risk associated with a prospect.
This paper concluded that, there do appear to be farm-out terms that could be attractive to both parties i.e. Farminee pays between 60% and 70% of exploration well costs to earn a 50% working interest. However, If Medco is subject to capital constraints and under timer pressure to drill an obligation well it may accept farm-in terms with little or no promote to limit its financial exposure and down side risk.
Alternatively, the farminee may be prepared to accept less than optimal farm-in terms on this prospect in exchange for an interest in the upside potential of other possible prospects in the contract.