Perpustakaan Digital ITB

Discounted cash flow (DCF) is commonly used to value upstream oil and gas projects, using the Weighted Average Cost of Capital (WACC) as the discount rate. However, WACC reflects the company's average operating risk and does not fully capture asset-specific uncertainty in production, operational expense (OPEX), capital expenditure (CAPEX), and oil price. This study proposes a Risk-Adjusted Discount Rate (RADR) methodology that incorporates four sources of uncertainty through Monte Carlo simulation and applied as a case study to Field X, an onshore oil field in Indonesia that has been producing by the time of valuation and is under a Production Sharing Contract (PSC) Cost Recovery scheme. The baseline WACC was calculated at 7.85%, generating a base case net present value (NPV) of USD 145.93 million. A Monte Carlo simulation with 1,000 iterations which generates 1,000 NPVs using triangular distributions for all four parameters was used to generate a P10 downside NPV, from which the RADR was determined through a goal-seek process. The resulting RADR is 12.48%, correlating to a risk premium of 4.63% above the baseline WACC. The risk premium represents the additional return required to compensate for the asset- level uncertainty that WACC does not capture. The RADR derived in this study is specific to Field X.