Strategic Decision-Making Using Economic Analysis for Gas Exploration in the West Java Area

Abstract

In Indonesia, the upstream oil and gas industry is seeing changes in exploration trends. Finding oil has become more complex, while the potential for natural gas remains high. Natural gas exploration is expected to be key in the energy transition. Also, Internal Company data shows that West Java is the second-largest contributor to gas lifting revenue, averaging 183.64 MMscfd from 2020 to 2022. This region is essential for energy supply, especially for power plants and industry in West Java. Despite its potential, natural gas exploration faces challenges. Its prices are less competitive than oil, requiring detailed analysis for production planning. Therefore, careful studies are necessary to assess the feasibility of gas projects. The Company uses a method called the TECOP parameter approach, which looks at Technical, Economic, Commercial, Operational, and Political factors. The technical aspect accounts for 40% of the evaluation, while the combined technical and commercial parts add another 30%. This thorough approach helps in understanding the various factors influencing projects and supports better decision-making. This case study will evaluate two gas prospects, Garuda and Elang, from a technical viewpoint, as done by the Exploration Division. An economic evaluation will support this analysis and assist management in deciding on project viability. Economic analyses use capital budgeting techniques with set input parameters, development scenarios, and current gas market conditions on different Exploration Program approaches. Defining the exploration program framework includes a decision tree and sensitivity analyses, which show that gas prices and well drilling costs significantly impact the expected monetary value (EMV). Through uncertainty analysis, this project has been found feasible for execution.