Capital Budgeting and Risk Analysis for High C02 Gas Development Using DCF Model and Monte Carlo Simulation

Abstract

Gas supplies in West Java are projected to have a shortage starting in 2023. Thus, PT. ABC seeks to increase gas production by re-evaluating marginal fields. One field that has the potential is X Field. However, X Field has a high C0² content (70%) which makes this development project require a significant investment to separate the C0² content. Thus, the economics of the project becomes very crucial.

This paper conducts a budgeting analysis to evaluate the economics of the X Field development project. By using the discounted cash flow (DCF) method, the results of this study will assist the company in determining whether X Field is feasible to develop or not. The following approach uses Monte Carlo Simulation to consider all risks in each parameter.

The results of the economic calculations show that X Field is feasible to be developed. The scenario chosen is the No Facility scenario or selling gas directly at the wellhead. The resulting NPV is 2,580 M$ with an IRR of 12.9% and a POT of 5.8 years. The Monte Carlo simulation shows that the project is risky, with a negative NPV probability of 16%. Therefore, setting the lowest gas price at 2.5 $/MMBtu is recommended.