ABSTRACT
Both oil and gold are commodities with price in US Dollars, but they choose different path in trend figure. While gold has been showing great stability over the years, oil keeps changing in price level. Oil price movements have distorted measurement of economic variables measured in dollar values. In economical evaluation for oil and gas field development projects longer than one year, oil price is one of the most critical assumptions. This paper is trying to solve whether:
gold is more stable than paper currencies
gold equivalency is more reliable way to project future costs/price
the gold-based oil price can be applied in current economical evaluation template of field development plan
Considering crude oil prices are moving dynamically for last decade, this paper exercise the model to determine realistic oil price assumption by using more stable "currencies", thus it can provide more reliable and accurate economical evaluation. It shows that gold-based crude-oil price is preferable indampening or mitigating:
effect of dynamic oil price nature
impact of inflation
risks of paper-based currency fluctuation
discount rate requirement
Using case study of Indonesian Production Sharing Contract (PSC) fiscal terms, the model provides more simple economical evaluation, resulting real net cashflow of field development plan. Demonstrating using gold equivalency instead of paper-based currencies provides more consistent and reliable nominal revenue in both perspective of PSC Contractor and Government.
