Economic comparirison study between risk service contract and production sharing contract in developing Malaysian marginal fields

Abstract

Since 1976, PETRONAS has gone through series of changes in its fiscal terms. As at 2012, PETRONAS has awarded three new Risk Service Contracts (RSC) for its marginal field development. In Malaysia, PETRONAS classifying marginal field as discovered reserve with recoverable less than 30 MMSTB and do not yield attractive return under current technical and economical conditions. The main objective of this study is to perform an economic study between PETRONAS Small Field Risk Service Contract and the Production Sharing Contract (PSC) 1997 in developing the Malaysian marginal fields. The framework of the new Small Field RSC and the fiscal terms of the PSC 1997 were obtained from literature reviews. The cash flows models were developed by using three hypothetical marginal field data of Field A (30 MMSTB), Field B (30 MMSTB with 0.75 TSCF) and Field C (0.75 TSCF) as the input. The NPV, IRR and payback period of the contractor economics were compared. The sensitivity analysis was also performed on the factors that will affect the NPV and IRR. From the results, it was found that the Small Field RSC gives higher NPV for Fields B and C compared to PSC 1997. For Field C, the NPV is negative under the PSC 1997. The RSC gives higher IRR and shorter payback period than the PSC 1997 in all fields. From the sensitivity analysis, it was found that the RSC is insensitive against the oil and gas price volatilities, but sensitive to change in OPEX, CAPEX and production rates. In conclusions, the new PETRONAS Small Field Risk Service Contract (RSC) provides better economic conditions for the marginal field development due to better tax incentives and capital allowances.