Publications

In the process of block tendering, each contractor should submit a competitive bidding proposal to the government in the effort to secure the block. Parameters considered most critical by the government are the commitment program and amount of signature bonus offered.The challenge for the contractors is how to justify the dollar value of those parameters, based on limited information available about the blocks.On the governments side, it is not only the intention to maximize revenue derived from these block tenders, but also the expectation that contractor winners will commence investing immediately in exploration activities as they proposed.The challenge for the government is how to justify the PSC scheme of the blocks so as to attract investors for bidding, and also to ascertain whether it is feasible to explore them immediately.Currently, the economic evaluation of unexplored blocks is based on a combination of Net Present Value (NPV) and Probability of Geological Success. This approach requires the assumption of a production profile and development cost schedule which in some cases is very difficult to obtain about unexplored blocks.The objective of this paper is to examine an alternative model, simpler but reliable enough to evaluate unexplored blocks, especially for bidding purposes. This study would extend the model from Paddock, Siegel and Smith (1988) to evaluate the blocks tendered in Indonesia.This paper concludes that this alternative model can helps both contractor and government in evaluating the economics of unexplored blocks with limited information.The benefit for contractor is that the model can be utilized to determine the appropriate amount of signature bonus and the total commitment program, based on limited information about the blocks.The benefit for the government is that the model can be utilized to exercise incentive scenarios in setting an attractive PSC scheme for the blocks that would be tendered.