Forecasting the Cost of Surface Facilities Based on Crude Oil Prices Using Linear Regression Method

Abstract

In early 2016, oil prices fell to its lowest level (30.32 US/bbl) over the last 12 years, and the coronavirus (Covid-19) outbreak that started at the end of 2019 has had a negative impact on the world economy (including the oil and gas industry). Since then, petroleum exploration and exploitation activities have decreased worldwide. The oil and gas companies had to make extra cost savings and produce new strategies to avoid negative cash flow and keep the projects economically acceptable, such as: cost efficiency, proposed incentives (investment credit, interest cost recovery, etc.), proposed changes to the terms and conditions of the existing contract (depreciation acceleration, DMO holiday, share of First Tranche Petroleum (FTP), change of Split Ratio, etc.), etc.

In terms of Investment Cost, this paper will assist the Contractors and the Government in determining the investment costs (surface facilities) of oil projects and its relationship to oil prices in order to assist them in evaluating the economics of oil and gas projects. Therefore, this paper will evaluate and analyze the relationship between the project cost of surface facilities (US$/bbl) and the oil price (US$/bbl). The steps had taken in this paper are as follows: collecting the project cost of surface facilities (2003–2020), oil price history (2003–2020), calculating the deviation between the cost of surface facilities and oil prices and developing a formula in the form of an estimate of the project cost of surface facilities at a certain oil price based on statistical data of 224 onshore – oil projects in Indonesia.

Based on the evaluation and statistical analysis of 224 onshore – oil projects in Indonesia, the formula that shows the correlation between the project cost of surface facilities (US$/bbl) and oil price (US$/bbl) is z = 0.007x + 2.1148, where z = cost of surface facilities and x = oil price. By using the oil price year 2020 (average WTI Crude by 39 US$/bbl), the estimated cost of surface facilities in the onshore area in Indonesia is 2.38 US$/bbl.