Application of Analytical Hierarchy Process (AHP) Method for Selecting Oil & Gas Farm-Out Blocks (2011)



Oil and gas upstream business commonly has a characteristic of high risk, high investment and high technology, but the business could also granted a high return if successful in finding oil and/or gas. The type of business is a long term investment due to the oil and gas production yield which can only be obtained after a minimum 3-5 years exploration phase. Therefore, an oil and gas company usually offers (farm-out) their ownership interest of the block to public in order to share the risk and the cost. Some oil and gas companies make a disclosed announcement to sell some of their shares on the block (especially for public listing companies) or to make a closed offering that is submitted directly to selected companies. With many farm-out blocks available in public, a company who is interested to farm-in to these blocks has to select the best one prior to making acquisition decision. Analytical Hierarchy Process (AHP) method could be applied to rank several offered blocks and selecting the best block that suited best with the company need. Hierarchy Analytical Process Method (AHP) is a model for decision making analysis. It is generally used with the aim to formulate the priorities of the various alternatives / options, and those choices are complex or multiple criteria. In this case study, using AHP method is aimed to get the picture of the block selection assessment, determine the factors that made the guidelines for assessing and analyzing the block selection and chooses an alternative block. In this case study, six (6) oil and gas farm-out blocks that have varied status are taken as an AHP project sample, they are “A” through “F” Block. “A” is under development phase, “D” Block has production status and the others are still in an exploration status.
Keywords: farm-out, oil and gas block, AHP, decision analysis.


Author : R. Widyanti, M. Narulita, T. Sidharta, Andang Bachtiar