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Plan Of Development Prosedur

Marginal Field Incentive
B PM IG
I A S
by
Benny Lubiantara
Evaluation & Dev. Plan Division, BPMIGAS
The Executive Agency for Upstream Oil & Gas Activities
DEFINITION
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A marginal field is an oil field located within a producing
block that, under the current PSC terms and conditions, is
not economics to be developed.
Old Definition in PSC Contract:
“Marginal Field” is the first field of the Contract Area proposed by
Contractor for development and approved, capable of Crude Oil
production not exceeding 10,000 Barrels daily average projected for
the initial two (2) production years (24 production months).
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Conditions for Marginal Field
• Located within a producing block.
• Its main product is oil.
• The exploration costs for that field has been fully recovered,
i.e. no more sunk costs considered.
• If calculate based on the current PSC terms and conditions
and other incentive packages that may be applied for that
field in accordance with laws and regulations, the Internal
Rate of Return (IRR) is estimated less than 15%.
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Working Area / Block
Marginal Field Candidates
Undeveloped Field
Field "A"
(producing)
Field "B"
(producing)
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Type of Incentive
•
20% Operating Cost*) recovery up-lift.
•
Other incentive packages that may be applied for that
field in accordance with the prevailing PSC, laws and
regulations.
*) Under Definition of the PSC, the Operating Cost consist of:
1. Current Year’s Non Capital Costs
2. Current Year’s Depreciation for Capital Costs
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Marginal Field Incentive
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The Mechanism
• Incentive is not permanently given and will be evaluated on
yearly basis.
• The new incentive package is issued in order to improve the
economics of the field, after receiving the incentive, the IRR of
the field is expected at least 15%. (The Incentive is “ON”)
• The Incentive will be removed if the actual cumulative IRR has
reached 30% (The Incentive is “OFF”).
• The Incentive will be re- apl ied if the actual cumulative IRR in
the followong year has dropped below 15%.
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The Concept of IRR Cumulative
10,000
Net Cash Flow
5,000
-
000)
2005
2006
2007
2008
2009
2010
2011
2012
2013
S
$ (
U (5,000)
IRR = 18.5%
(10,000)
(15,000)
Year
7
20%
IRR Cumulative
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10%
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
-10%
-20%
-30%
IRR = 18.5%
-40%
10,000
Net Cash Flow
5,000
-
2005
2006
2007
2008
2009
2010
2011
2012
2013
(5,000)
(10,000)
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(15,000)
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Incentive “OFF”
50%
IRR Cumulative if Incentive not OFF
40%
IRR Cumulative
30%
20%
10%
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
-10%
-20%
-30%
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Most Likely Case
"On - Off" Mechanism
Expected IRR Cumulative Trend if the Incentive is NOT Removed
Incentive "Off"
u
l
a
t
i
v
e
u
m
Incentive "On"
30%
I
RR C
15%
Year
10
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Extreme - Case
"On - Off" Mechanism
Expected IRR Cumulative Trend if Incentive is NOT Removed
v
e
ti
u
la
u
m
Incentive "On"
Incentive "Off"
30%
I
RR C
15%
Incentive "Off"
Incentive "On"
Year
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Illutration
Marginal Field
( Realization)
Field "A"
(producing)
Marginal Field
( Initial Condition )
Field "B"
(producing)
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Always “On” - Case
"On - Off" Mechanism
u
l
a
t
i
v
e
m
Incentive always "On"
R
Cu 30%
IR
15%
Year
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Procedure
Registration & Submission
1.
PSC could register the candidates for marginal field by submitting the
summary of POD. BPMIGAS will response by sending the written answer no
longer than 10 working days.
2.
No longer than 6 months following the registration, PSC should submit
complete POD (in order to speed-up the process, the draft of AFE proposal
need also to be attached).
3.
Registration period is 12 months (25 April 2005 – 24 April 2006)
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Procedure
Evaluation, Approval & Implementation
1. When submitting the POD, the assumption for oil price is
US$ 25 per barrel.
2. BPMIGAS will approve or not approve the POD proposal by
sending the written answer to the PSC no longer than 30
days after receiving the POD proposal.
3. PSC should commence the activities no longer than one year
after POD approved.
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Procedure
Evaluation, Approval & Implementation
4. The commencement of the activies is
”declared” if:
• Tender Plan is appoved; or
• Tender Announced; or
• Execution of the Field Development
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Procedure
Implementing and Reporting
1. PSC should make the special book account for marginal field.
2. The marginal field insentive is taxable.
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