The use of gross split contract scheme in economic analysis of shale gas field at meliat formation in Tarakan Basin

Abstract

Due to the low supply and increasing demand for natural gas in Indonesia, the government has decided to develop other resources such as shale gas. The Meliat formation in the Tarakan Basin has a shale-gas potential for which 3.8 TCF is technically recoverable with 25.1 TCF risked in place. This study examines the economic impact of the gross split contract scheme on the development of this shale-gas field. Our model leverages three flow-rate profiles, comprising a low-production profile wells having an initial production (qi) of 50 mmcf/mo, a medium-production profile wells of qi = 125 mmcf/mo and a high-production profile wells of qi = 200 mmcf/mo. We used US models and the nearest field in the Tarakan Basin as a benchmark in making investment costs for development. Sensitivity analysis was conduct for the production profile, drilling costs and wellhead gas prices. Gross split contracts have a net present value (NPV) > 0 and an individual rate of return >10% on medium and high-production profile wells. The analysis showed that the production profile is the most substantial factor that is affected by the NPV increase. As a result, the indicator of NPV reaching positive is when the gas price sets at $9.24/MMBTU for medium-production profile wells and $6.43/MMBTU for high-production profile wells.