Using an Economic Model for Assessing High-Risk Exploration Project, M and B PSC Assets, in Sumatra, Indonesia

Abstract

In 2022 and the next few years, Energi Mega Persada will conduct the exploration projects campaign in several producing blocks including M and B to seek some potential upside for adding company book reserves. This exploration will consist of geological and geophysical seismic, acquisition, processing, and drilling. It’s estimated to spend a large capital investment so it’s needed justified economic modeling.

High-risk projects including exploration are projects that are full of uncertainty and randomness, so the approach to the economic model is not enough with a predictable deterministic model, but also requires a stochastic model approach that takes into account the random factor. In the economic model that will be made, of course, it will consider risk in decision making, so to make it easier, a decision tree path is made M and B are assets that already have steady cash flow. In principle, the two blocks can finance all of their operating activities and set aside cash reserves for investment activities. But how much financial strength is there to pay for exploration activities and how to choose an exploration project that has a positive impact on the company needs to be looked at further and again the difference between the two types of PSC, namely M which uses gross split and B which uses cost recovery also has an effect on economic calculations.

Economic modeling, both deterministic and stochastic, which are in principle opposite, has been used to view the project prospect in Energi Mega Persada, so that the project can be understood better, and can sort out projects that are economically disadvantaged.