Monte Carlo Net Present Value for Techno-Economic Analysis of Oil and Gas Production Sharing Contract

Abstract

This paper presents a techno-economic analysis for oil and gas production sharing contract (PSC) which is subjected to uncertainty from fluctuation of natural gas prices and production reservoir capacity. Net present value (NPV) is calculated based on a 10-year contract duration considering capital-operational expenditure, production sharing contract bidding value, and salvage value. The Monte Carlo method is embedded in the NPV analysis to quantify the probability of the production sharing contract’s profit and loss. The result of this probability is utilized as input for determining the decision to acquire the PSC. This paper confirms that investment in the oil and gas industry is high risk. This type of investment is only suitable for companies with strong equity or financial power.

Keywords

• Monte Carlo method
• Net present value
• Production sharing contract