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ANIMASHAUN Tunde
Table of Content
Introduction
Petroleum Industry consists of a series of
distinct segments E&P, refining, marketing
and transportation
Exploration is the most risky segment
Profitability varies from segment to segment
Reserves are the principal assets of the
industry
The industry is not allowed to self regulating
and very susceptible to significant outside
political control
The industry is probably the most heavily
taxed of all business enterprise worldwide
(75% tax on Oil)
Introduction
Production costs =Technical cost + Fiscal
Cost
Technical Cost = f(no. of wells drilled, depth
of the well, nature of the rock drilled, CAPEX)
E&P industry is an extractive capital
intensive industry with a high level of risk
factor
Introduction
The decision to invest is primarily
driven by economics but may be
subject to social , environmental and
security of investments
The primary goal of E&P firm is to
maximize the present value of total
profit in the long run without
breaking law
Weakness:
Does not recognize the size and timing of cash flows
A: Investment = $25 Million; Profit = $10 Million or B:
Investment $50 Million; Profit = $10 Million
Which project is preferred?
Operating Cost
Capital Expenditure
Salvage Value
DECISION TREES
Decision trees provide a map for
choices.
Monte Carlo simulation provides
broad ranges of possible outcomes
for better decision making
Decision tree
Chance
Chance
Commercial
Producer
Decision
Marginal
Drill
Dry hole
Dont
drill
Dead end
Commercial
75%
Producer
Decision
25%
35%
Drill
65%
Dry hole
Dont
drill
Dead end
Marginal
$701 K
Dead end
$0
25%
35%
65%
$3,000 K
75%
Producer $2,375 K
Dry hole
Dont
drill
Commercial
Marginal
$500 K
-$200 K
$3,000 K x 0.75 =
$500 K x 0.25 =
=
$2,250 K
$125 K
$2,375 K
Chance
Decision
$701 K
Drill
Dont
$0
drill
Farm out with
25% WI buy in
Commercial
$2,375 K
35%
65%
Dry hole
75%
25%
$500 K
Marginal
-$200 K
$594 K
$208 K
$3,000 K
35%
65%
How do we derive the value
$0
of $750 K?
$750 K
75%
25%
$125 K
Chance
Decision
75%
$701 K
Dont
$0
drill
Dry hole
Drill
Commercial
$2,375 K
35%
65%
75%
25%
$500 K
Marginal
-$200 K
$750 K
$594 K
$208 K
Farm out with
buy in 25%
$3,000 K
75%
35%
25%
$125 K
65%
$0
Chance
Decision
75%
$701 K
Dont
$0
drill
Dry hole
Drill
Commercial
$2,375 K
35%
65%
75%
25%
$500 K
Marginal
-$200K
$750 K
$594 K
$208 K
Farm out with
buy in 25%
$3,000 K
75%
35%
25%
$125 K
65%
$0
$726 K
Producer
Drill
$69 K
29%
Minimum (17.2%)
71%
Dry hole
Dont
drill
$0
$1,277 K
$145 K
- $200 K
Commercial
Producer
Decision
Marginal
Drill
Dry hole
Dont
drill
Dead end
Commercial
75%
Producer
Decision
25%
35%
Drill
65%
Marginal
Dry hole
Dont
drill
Dead end
Estimate
probabilities of all
outcomes
Commercial
75%
Producer
Decision
25%
35%
Drill
65%
Dry hole
Dont
drill
Dead end
$0
$3,000 K
Marginal
$580 K
- $200 K
Estimate
Financial results of
all outcomes
Chance
Chance
75%
Producer
Decision
25%
35%
Drill
65%
Dry hole
Dont
drill
Dead end
$3,000 K
Marginal
$580 K
- $200 K
Select best alternative for the
decision node
$0
I
Bonus and Leasehold Costs
100
0
Dry holes
0
100
Production/Injection Wells
30
70
Drilling Platforms
70
30
Production Platforms
100
0
Year
(a)
1
2
3
4
5
Total
Intangible
Tangible
Development Lease & Well
Costs
(b)
(c)
Other
(d)
1,000,000
500,000
50,000
1,000,000
500,000
50,000
20.0%
$20.00
10.0%
4.80
150.00
20.0%
C: REVENUE
Annual
Gross
Production
(a)
(e)
Year
1
2
3
4
5
Total
400,000
200,000
100,000
50,000
25,000
775,000
Gross
Production
Income
(f)
8,000,000
4,000,000
2,000,000
1,000,000
500,000
15,500,000
Land
Owner
Royalty
(g)
1,600,000
800,000
400,000
200,000
100,000
3,100,000
Net
Operating
Income
(h)
6,400,000
3,200,000
1,600,000
800,000
400,000
12,400,000
D: OPERATING EXPENDITURES
Year
(a)
Total
Direct
Operating
Costs
(I)
1 1,920,000
2
960,000
3
480,000
4
240,000
5
120,000
3,720,000
Business
Overhead
(j)
Investment
Overhead
(k)
150,000
150,000
150,000
150,000
150,000
750,000
310,000
310,000
State &
Local
Taxes
(I)
640,000
320,000
160,000
80,000
40,000
1,240,000
Year
CAPEX
(a)
(m)
1
2
3
4
5
Total
1,550,000
0
0
0
0
1,550,000
NOREV
(n)
6,400,000
3,200,000
1,600,000
800,000
400,000
12,400,000
OPEX
(o)
3,020,000
1,430,000
790,000
470,000
310,000
6,020,000
Savage
Value
(h)
0
0
0
0
0
0
Fiscal Depreciation
The purpose is to spread investment costs over time, for
income tax and financial report purposes.
It is a method for capital recovery of the costs of a fixed
assets over the estimated useful life of the asset
It has to be estimated according the underlying rules set
by tax legislation.
Depreciation involves estimating service life, salvage
value, and pattern of depreciation. Estimating the useful
life is the most important factor.
The ranges of lives permitted may differ from place to
place. The more liberal Class Life Asset Depreciation
Range ADR for drilling is 5-7 years and for E&P is 11-17
years.
DEPRECIATION
Depreciation is the process of prorating as
expenses the capitalized costs of certain items
over a period of years.
Depreciation is a non cash charge, deductible from
the tax base which represents a reasonable
allowance for the exhaustion, wear and tear and
obsolescence of depreciable property used in
business or held for the production of income. This
enables a firm or business to recover the cost of a
depreciable asset during its estimated useful life.
DEPLETION ALLOWANCE
Depletion is the result of systematic and
intentional removal of certain types of asset.
An activity that tends to exhaust.
When depreciation concept is applied to oil and
gas or any mineral, it is called depletion. It
indicates a lessening of the value of a natural
resource asset as it is produced with time.
Specific replacement of used assets is not
possible. Acquisition of new properties is a
necessity to remain in business.
Depletion differs theoretically from
depreciation as the latter results from use and
the passage of time. Specific replacement of
used assets are possible.
DEPLETION ALLOWANCE
COST
Depletion Cost Method
Depletion charge is based on the amount of the
resource that is consumed and the initial cost of the
resource
Unit depletion rate = investment cost divided by units of
resource
Amortization of Intangible
CAPEX
The most commonly used method of
amortization of intangible capital in the
oil business in unit of production
method
The most frequently amortized
intangible cost is drilling expense
Lease bonus is another capital
expenditure that is frequently amortized
especially if failure is anticipated.
Net
Net
Net
Net
Revenue = (1-A)*(Revenue-Royalty)
OPEX = (1-A)*(operating costs+overheads+other taxes)
CAPEX = CAPEX-[A*(depreci + expinv+amorinv)
DPLEX = DPLEX A* depletion cost
Given the following hypothetical data for a new venture with the following production schedule in thousands,
calculate the AFT NCS each year:
1
2
3
4
5
Total
400
200
100
50
25
775
= 20 %
= $20.00
= 10 % of Net Revenue
= $4.80 per unit of total production
= $150,000 per year
= 20 percent of Investment
= $ 1 Million
= $500,000
20
$20.00
10
$4.80
$150,000
20
$1,000,000
70
30
$500,000
40
1
400
% of Operating Revenue
per unit of total production
per year
percent of Investment
percent of Investment
percent of Investment
percent of Income
2
200
3
100
4
50
5
25
Total
775
1
FACTOR
1
0.2
0.8
0.6
400
$20.00
$8,000
$1,600
$6,400
$3,840
3
100
$20.00
$2,000
$400
$1,600
$960
5
25
$20.00
$500
$100
$400
$240
Total
775
$20.00
$15,500
$3,100
$12,400
$7,440
OPEX COMPONENTS
State and Local taxes
Operating costs
Business Overheads
Investment Overheads
-0.6
-0.6
-0.6
-0.6
(384)
(1,152)
(96)
(288)
(24)
(72)
(744)
(2,232)
(90)
(90)
(90)
(450)
Net OPEX
-0.6
(1,806)
(180)
(180)
(474)
(186)
(3,606)
Factor
(1.00)
($1,000)
0.40
$93
0.40
$120
0.40
Total
($1,000)
$26
$19
$280
$120
$0
($787)
(1.00)
$0
$26
$19
($500)
($600)
($500)
0.40
$103
$26
$6
$200
0.40
($397)
$26
$6
($300)
YEAR
NET REVENUE
NET DPLEX
NET CAPEX
NET OPEX
NET OTHER
After Tax NCF
Total
$3,840
(1,806)
($787)
($397)
$0
$960
(474)
$26
$26
$1
$240
(186)
$19
$6
$2
$7,440
(3,606)
($600)
($300)
$3
$851
$539
$81
$2,937
Petroleum Production
Economics
Perspectives on petroleum resources and
reserves
Decline curves, equations, and analysis
Relationship between reserves and initial
production capacity
Optimum production capacity and
economic life of reserves
Impact analysis of economic life of
reserves
dq / q = - dt / (a + bt)
where a and b are constants
Exponential Decline
Equation
Exponential decline equation
Most commonly used in economic
application of the decline curve
analysis of many reservoirs because
they are simple to use.
The exponential decline equation also
called constant percentage decline
equation takes the form: dq / dt = -aq
Exponential Decline
Equation
Exponential functional specification
qt = qi e-at
Np = (qi - qt ) / a
where a = instantaneous decline rate
= [ ln(qi / qt)] / t
= - ln (1-d) and d= 1- e-a
qi = q*1 (a/d)
Production Forecasting-Plots
Commonly used exponential plots include
Production Forecasting
Decline technique has long been the favorite for
PEs because:
Operating costs
Dismantling cost-- removal of
installation when production ceases is
not quite trivial, especially in offshore
operations
Option value of keeping the field
accessible in case profitability improves
in the future
B = b q0
B = b q0
Petroleum Investment
Analytics
Fundamentals
Undiscounted Decision Criteria
Present Value Concepts
Discounted Decision Criteria
Incremental Economics
FUNDAMENTAL BASES
The choice between two cash flow streams of equal
risk is determined such that:
INVESTMENT DECISION
CRITERIA
Investment decision criteria provide a quick
way to evaluate the economic merits of a
proposed E&P venture or project.
There is no single profitability criterion that
incorporates all the important elements
underlying E&P business decisions and
organizational goals.
There is no perfect measure that guarantees
a perfect or proper decision, which may fit all
projects at all time and for all organizations
In fact, there is no general agreement about
which criteria are best, and there is even no
general consensus about the various names
and definitions of profitability measures.
Popular Performance
Indicators
The more popular measures of E&P profitability
or E&P project economic performance can be
divided into two broad categories:
Measures that ignore time-value of money
Net profit
Payout (PO)
Benefits-to-cost-ratios (BCR) using undiscounted cash flows
Weakness:
Does not recognize the size and timing of cash flows
A: Investment = $25 Million; Profit = $10 Million or B: Investment
$50 Million; Profit = $10 Million
Which project is preferred?
Payout(PO) as a Decision
Criterion
This criterion is also called pay back period.
It provides an answer to a simple question of how
long it will take to recover E&P investments
It is the time required to recover the investment on
either AFT or BFT cash flow basis.
It is an indication of the rate at which cash flows are
generated early in the project.
Categories of Payout(PO)
Undiscounted Cash-flow PO:
the time lapse from initial investment on E&P venture
until recovery of investment
a measure of the liquidity of invested funds
a measure of risk exposure
Characteristics of
Payout(PO)
Strength:
Simple and straightforward in application
Measures an impact in liquidity
Weakness
It considers cash flows only to payback time
No consideration for projects with large abandonment
cost with negate cash inflow late in life
Project payouts cannot be weighted
Variants of PO:
Times pay back periodmultiple of original investment
Half-lifetime to realize half of the FNCF or production
$275.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$275.000
$132.900
$132.900
$107.600
$69.200
$43.500
$28.600
$15.900
$9.400
$5.600
$1.900
$1.500
$1.200
$1.000
$551.200
Other
Net AFT
CAPEX Cash Flow
($Million) ($Million)
$0.000
$0.000
$0.000
$0.000
$10.000
$0.000
$20.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$30.000
Payout =
Cum
NCF
($Million)
($142.100) ($142.100)
$132.900
($9.200)
$107.600
$98.400
$69.200
$167.600
$33.500
$201.100
$28.600
$229.700
($4.100)
$225.600
$9.400
$235.000
$5.600
$240.600
$1.900
$242.500
$1.500
$244.000
$1.200
$245.200
$1.000
$246.200
$246.200 $2,224.600
2.09 Years
Benefit-to-Cost Ratio
Criterion
A benefits-to-cost ratio B/C or BCR is a measure of
the returns per dollar invested.
There are two ways to specify the dollar invested:
Total investment
Maximum Out of Pocket (MOP) cash
MOP cash is the lowest negative value on a
cumulative net cash flow curve
Benefit-to-Cost Ratio
Criterion
BCRs may be calculated on a BFT or AFT basis,
and they may be discounted or undiscounted.
BCRs has many synonyms
Return on Investment
Criterion
Return on Investment (ROI) is simply the total income
attributable to a project divided by the total
investments for the project.
Unlike PO, which does not reflect the total profit from
the investment project, ROI reflect total profit or return.
It is defined as either:
Weaknesses:
The parameters and calculation methods must be well
defined
There are possibilities of accounting inconsistencies
No standard procedure as to what to do with
reinvestments
Project BCR cannot be weighted
Do not reflect the time pattern of cash flow
$2.92
12.5%
5.0%
150
$575
$150,000
14.3
200,000.0
15.0
150
$575
$150,000
14.3
243,000.0
30.0
$485,450
$589,822
$103,500
$20,000
$211,950
1.41
$207,000
$20,000
$212,822
1.42
Time-Value of Money
Time value of money concept can be examined from
two dimensions
FV = PV * FVIF(r,t) = PV*(1+r)t
FV = PV * FVIF(r,t) = PV*(1+r)t
Example of PV Calculation
What is the present value, discounting at 10 % of a
certain $1,331 investment to be received in 3 years
from now?
Frequency of Compounding
Nominal interest rate, s, is the rate of interest per year,
which is used to calculate the periodic rate of interest
Effective interest rate, r, measures the annual increase of
a principal when compounded one or more times a year.
In general, if nominal interest rate expressed as a fraction
per year is s and if it is compounded k times per year,
then
FV=PV(1+s/k)k = PV(1+r) after the first year, and
FV=PV(1+s/k)nk = PV(1+r)n after n years
s = k(1+r)1/k-k
Frequency of Compounding
Nominal interest rate, s, is the rate of interest per year,
which is used to calculate the periodic rate of interest
Effective interest rate, r, measures the annual increase
of a principal when compounded one or more times a
year.
In general, if nominal interest rate expressed as a
fraction per year is s and if it is compounded k times per
year, then
Frequency of Compounding
Interest may also be compounded continuously
such that k becomes infinite:
FV = PV esn
PV = PV e-sn
s=ln (1+r),
where r is the effective interest rate
Frequency of Compounding
Effective, Nominal, Continous Rate Comparison
Nominal Rate ,s
Periodic Compounding,n
Effective
Interest Rate Biannual Quarterly Monthly
Daily
r
2
4
12
365
Continuous
s = ln (1+r)
5.0%
10.0%
15.0%
20.0%
25.0%
4.939%
9.762%
14.476%
19.089%
23.607%
4.909%
9.645%
14.223%
18.654%
22.949%
4.889%
9.569%
14.058%
18.371%
22.523%
4.879%
9.532%
13.979%
18.237%
22.321%
4.879%
9.531%
13.976%
18.232%
22.314%
30.0%
35.0%
40.0%
45.0%
50.0%
28.035%
32.379%
36.643%
40.832%
44.949%
27.116%
31.165%
35.103%
38.937%
42.673%
26.525%
30.389%
34.123%
37.738%
41.239%
26.246%
30.023%
33.663%
37.175%
40.569%
26.236%
30.010%
33.647%
37.156%
40.547%
Daily
365
Continuous
00
1
2
3
4
5
0.8696
0.7561
0.6575
0.5718
0.4972
0.8653
0.7488
0.6480
0.5607
0.4852
0.8631
0.7449
0.6429
0.5549
0.4789
0.8615
0.7422
0.6394
0.5509
0.4746
0.8607
0.7409
0.6377
0.5489
0.4724
0.8607
0.7408
0.6376
0.5488
0.4724
6
7
8
9
10
0.4323
0.3759
0.3269
0.2843
0.2472
0.4199
0.3633
0.3144
0.2720
0.2354
0.4133
0.3567
0.3079
0.2657
0.2293
0.4088
0.3522
0.3034
0.2614
0.2252
0.4066
0.3500
0.3013
0.2593
0.2232
0.4066
0.3499
0.3012
0.2592
0.2231
Effect of Timing on
Discounting
PVIF (10,n) with payment at mid -period and end period of the year
Nominal Rate
20.0%
Periodic Discounting, n
Year
Annual
Annual
Monthly Monthly ContinuousContinuous
n
1
1
12
12
00
00
EYR
MYR
EYR
MYR
EOY
MYR
1
0.8333
0.9129
0.8201
0.9056
0.8187
0.9048
2
0.6944
0.7607
0.6725
0.7427
0.6703
0.7408
3
0.5787
0.6339
0.5515
0.6090
0.5488
0.6065
4
0.4823
0.5283
0.4523
0.4995
0.4493
0.4966
5
0.4019
0.4402
0.3709
0.4096
0.3679
0.4066
6
7
8
9
10
0.3349
0.2791
0.2326
0.1938
0.1615
0.3669
0.3057
0.2548
0.2123
0.1769
0.3042
0.2495
0.2046
0.1678
0.1376
0.3359
0.2755
0.2259
0.1853
0.1519
0.3012
0.2466
0.2019
0.1653
0.1353
0.3329
0.2725
0.2231
0.1827
0.1496
ANNUITIES
An annuity is a method of spreading
cost evenly, or repayment of a debt,
with interest.
It provides for full payment of the cost
or debt over the specified period of
time
Each payment covers a portion of the
total costs plus interest on the
remaining balance.
10.0%
AFT NCF
($142.10)
$132.90
$107.60
$69.20
$33.50
$28.60
($4.10)
$9.40
$5.60
$1.90
$1.50
$1.20
$1.00
$246.200
PVIF(10,n)
(a)
0.9512
0.8607
0.7788
0.7047
0.6376
0.5769
0.5220
0.4724
0.4274
0.3867
0.3499
0.3166
0.2865
PVIF(10,n)
(b)
0.9535
0.8668
0.7880
0.7164
0.6512
0.5920
0.5382
0.4893
0.4448
0.4044
0.3676
0.3342
0.3038
MYConti
NPV
($135.170)
$114.388
$83.799
$48.764
$21.361
$16.501
($2.140)
$4.440
$2.394
$0.735
$0.525
$0.380
$0.287
MYAnnual
NPV
($135.487)
$115.196
$84.787
$49.571
$21.816
$16.932
($2.207)
$4.599
$2.491
$0.768
$0.551
$0.401
$0.304
Uncorrected
NPV(10 )*
Corrected
NPV( 10)
$156.263
$159.723
$152.290
$159.723
Characteristics of NPV
It recognizes the time value of money and
apply equal weight to all future incomes
NPV can be computed on an AFT or BFT basis
The discount rate in NPV reflects presumably
future investment opportunities.
If NPV=0, the project is exactly marginal. If
NPV>0, the project is adding value. If it is <0,
the project is destroying value, but not
necessarily unprofitable, check out the pay out
It is suitable for use with probabilities
NPV does not indicate the magnitude of cash
flow
Discount rate can be changed during the life of
the project
STEP 2:
Find present value at t=0 of cash received in year 12
discounted at 15 percent
STEP 3:
Find NPV for years 1-12, discounting at 15 percent
Step 4;
Add Step 2 and Step 3 to get the total NPV
Spreadsheet
NPV (Corr)
$346.473
(200)
150
150
140
140
130
130
120
110
100
90
80
0.933
($186.501)
0.811
$121.631
0.705
$105.766
0.613
$85.839
0.533
$74.643
0.464
$60.271
0.403
$52.409
0.351
$42.068
0.305
$33.532
0.265
$26.508
0.231
$20.745
0.200
$16.035
$452.945
$452.945
$517.703
{(CFt)*PVIF(r,t)} = 0
Computation of IRR
Step 1: Find the PV of all future NCF associated
with the investment using a guess-estimate
discount factor
Step 2: If the PV of NCF is greater than zero, select
a higher discount rate for the next trial and repeat
Step1
Step 3: If PV of NCF is less than zero, select a lower
discount and repeat the process or interpolate to
estimate the factor that will make PV of NCF =0.
The interpolation can be done mathematically or
graphically using calculators or computer spreadsheet
programs.
Computation of IRR-Example
NCF
20%
Actual ($ Million ) Discount
Year
Factor (MY)
0
1
2
3
4
5
6
7
8
9
10
11
12
(75)
15
15
14
14
13
13
12
11
10
9
8
7
20.0%
Discounted
NCF
1.0000
($75.000)
0.9129
$13.693
0.7607
$11.411
0.6339
$8.875
0.5283
$7.396
0.4402
$5.723
0.3669
$4.769
0.3057
$3.669
0.2548
$2.802
0.2123
$2.123
0.1769
$1.592
0.1474
$1.179
0.1229
$0.860
($10.907)
($10.907)
NPV
10.0%
14.976%
$14.735
($0.000)
Some Characteristics of
ROR
The computation of rate of return generally requires
a trial-and-error solution.
The ROR concepts introduces time value of money
into profitability decision rule.
It is a profitability index that is independent of the
size of cash flows and can be calculated on a BFT or
AFT basis.
There may be certain cash flows in which more than
one discount rate satisfies the rate of return
definition.
A necessary condition to have multiple rates of return is to
have a second sign reversal in CCF position function
Some Characteristics of
ROR
ROR cannot be calculated when the cash flows
are all negative or are all positive or total
undiscounted revenues are less than the
investment.
Early cash flows are weighted more heavily than
the later cash flows
ROR calculated by iterative process is very
sensitive to errors in investment estimates and
early cash receipts.
Avery small error in investment estimates can produce
much larger percent error in ROR estimates
Discounted Return on
Investment
Discounted return on investment DROI is a
dimensionless ratio of a projects NPV to the PV of
total investment required using the same discount
factor.
This has also been referred to using different
synonyms:
Discounted profit to investment ratio (DPI, DPIR, DPR)
Net present value index (NPVI)
Some Characteristics of
DROI
Mathematically,
DROI = NPV of projects/PV of total investment
Any constraining resources can be substituted, such as
time to complete the project
Risk-Weighted Rate of
Return
Assumption inherent is risked weighted approach
is simply that there are only two possible
outcomes
The investment results in streams of cash receipts with
some probability, P
Investments result in no revenue with probability (1-P)
GROR Calculation--Example
Actual Investments
Year
($Million)
0
(200)
1
(150)
2
(125)
3
0
4
0
5
0
6
0
7
0
8
0
9
0
10
0
12%
Discounted
12%
Investments
Discount
($Million) Factor (EOY)
200.000
1.0000
133.929
0.8929
99.649
0.7972
0
0.7118
0
0.6355
0
0.5674
0
0.5066
0
0.4523
0
0.4039
0
0.3606
0
0.3220
Cash Flows
($Million)
$0.000
$0.000
$250.000
$350.000
$300.000
$290.000
$275.000
$175.000
$35.000
$25.000
$10.000
8%
Compounded
Cash Flow
($Million)
$0.000
$0.000
$291.600
$440.899
$408.147
$426.105
$436.390
$299.919
$64.783
$49.975
$21.589
NPV =
433.578
$433.58
$1,710.000
$2,439.408
GROR is the interest rate earned by $434 Mln, which yields $2,439 Mln.
=
17.3%
13.7%
GROR CalculationExample
2
8%
Compounded
Cash Flow
($Million)
$0.000
$0.000
$280.592
$424.255
$392.739
$410.020
$419.917
$288.597
$62.337
$48.089
$20.774
Net
Cash Flow
($Million)
($200.000)
($133.929)
$150.351
$350.000
$300.000
$290.000
$275.000
$175.000
$35.000
$25.000
$10.000
NPV =
433.578
$433.58
$1,710.000
$2,347.321
GROR is the interest rate earned by $434 Mln, which yields $2,347 Mln.
$1,276.422
$649.467
Actual Investments
Year
($Million)
0
(200)
1
(150)
2
(125)
3
0
4
0
5
0
6
0
7
0
8
0
9
0
10
0
Discounted
Investments
($Million)
200.000
133.929
99.649
0
0
0
0
0
0
0
0
16.9%
13.7%
12%
Discount
Factor (MYP)
1.0000
0.8929
0.7972
0.7118
0.6355
0.5674
0.5066
0.4523
0.4039
0.3606
0.3220
Cash Flows
($Million)
$0.000
$0.000
$250.000
$350.000
$300.000
$290.000
$275.000
$175.000
$35.000
$25.000
$10.000
Discounted
Investments
($Million)
200.000
133.929
99.649
0
0
0
0
0
0
0
0
12%
Discount
Factor (MYP)
1.0000
0.8929
0.7972
0.7118
0.6355
0.5674
0.5066
0.4523
0.4039
0.3606
0.3220
Cash Flows
($Million)
$0.000
$0.000
$250.000
$350.000
$300.000
$290.000
$275.000
$175.000
$35.000
$25.000
$10.000
Net
Cash Flow
($Million)
($200.000)
($133.929)
$150.351
$350.000
$300.000
$290.000
$275.000
$175.000
$35.000
$25.000
$10.000
NPV =
433.578
$433.58
$1,710.000 $1,276.422
GROR is the interest rate earned by $434 Mln, which yields $2,347 $649.467
Mln.
=
13.7%
26.5%
$114.945
Estimating PV Under
Inflation
A: Current Dollar Analysis
Year
n
0
1
2
3
4
5
6
7
8
9
10
11
12
Estimated
Costs
$Million
100
0
0
0
50
0
0
0
55
0
0
0
0
Est. Net
Revenues
$Million
$70
$65
$55
$50
$45
$45
$35
$30
$30
$20
$15
$10
$5
Escalation Rate
Hurdle Rate
15%
10%
20%
Escalated
Escalted NetDiscounted
Costs Revenues
Cash Flow Cash Flow
$Million
$Million
$Million
100.000
70.000
($30.000) ($30.000)
0.000
71.500
$71.500 $65.270
0.000
66.550
$66.550 $50.626
0.000
66.550
$66.550 $42.189
87.450
65.885
($21.566) ($11.393)
0.000
72.473
$72.473 $31.905
0.000
62.005
$62.005 $22.747
0.000
58.462
$58.462 $17.873
168.246
64.308
($103.939) ($26.480)
0.000
47.159
$47.159 $10.012
0.000
38.906
$38.906
$6.883
0.000
28.531
$28.531
$4.206
0.000
15.692
$15.692
$1.928
NPV (20, n) =
$185.767
$185.767
Estimating PV Under
Inflation
A: Constant Dollar Analysis
Estimated Est. Net
Year
Costs Revenues
n $Million $Million
0
100
$70
1
0
$65
2
0
$55
3
0
$50
4
50
$45
5
0
$45
6
0
$35
7
0
$30
8
55
$30
9
0
$20
10
0
$15
11
0
$10
12
0
$5
Escalation Rate
*Hurdle Rate
15%
10%
20%
Escalated
Escalted Net
Costs Revenues
Cash Flow
$Million
$Million
$Million
100.000
70.000
($30.000)
0.000
71.500
$71.500
0.000
66.550
$66.550
0.000
66.550
$66.550
87.450
65.885
($21.566)
0.000
72.473
$72.473
0.000
62.005
$62.005
0.000
58.462
$58.462
168.246
64.308
($103.939)
0.000
47.159
$47.159
0.000
38.906
$38.906
0.000
28.531
$28.531
0.000
15.692
$15.692
NPV (r, n) =
$185.767
Incremental Economic
Analysis
Incremental economic analysis provides an
approach whereby PEs can determine whether
additional investment is justified or whether there
is any justification to accelerate investments in a
project.
Examples where incremental economic analysis
can be found useful include but not limited:
EXERCISE 1
An oil field has been discovered that has the potential
of 50 Million barrels of oil. The field was acquired in
early 1990 for $100 Million and exploration venture
has been proceeding for four years at an annual cash
outlay of about $10 million per year.
The first
successful well in the field was in late 1994 at an
estimated cost of $15 Million. After the discovery, it is
estimated that field development will take about 4
years, with production beginning at the end of the
second year.
During the next four years after the discovery 10
successful wells will be drilled at the cost of $6 Million
per well. Development drilling success rate is
estimated at 80 percent, while the cost of drilling a dry
development well is estimated at $4 million dollars.
Facilities will be constructed concurrently at a total
cost of $40 million to handle 15,000 barrels of oil per
day.
EXERCISE II
PART II: Suppose there is a one-eighth mineral owners
royalty in this field, state and local taxes consist of of
a 5 cents per bbl production tax and 3 percent ad
valorem tax, and no state income tax is charged.
Evaluate this E&P ventures to determine whether the
development of the field would be a profitable
undertaking by making annual and total BFT and AFT
net cash flow calculations. Determine also the BFT
and AFT investment costs and the NPV of the venture
at 8 percent using mid-year continuous discounting.
What are the undiscounted and discounted, before tax
and after tax investment decision measuresthe
PO,ROI, PIR,IRR?
EXERCISE III
Assumptions:
Oil sale price increases at a constant annual rate
from $25 dollars per bbl to a maximum of $40 over
the next ten years and decline at two and one-half
percent till the economic life
Operating costs are $400,000 per year and $2.00
per bbl lifting and treating costs
Overhead will be charged at 10 percent of all
investments, excluding cash bonus, and direct
operating expenses plus $200,000 per year
For income tax purposes, 80 percent of the
investments will be capitalized and depreciated by
5-year SLD schemes; the remaining 20 percent is
expensed. The field was abandoned and restored
at an estimated cost of $25 million twenty years
after discovery .
(Adapted from Seba, 1998, Roebuck, 1992 and PETE 7242)
50 MMBbls
12.5%
5.0%
3.0%
Venture
Year
Cash Flow
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2015
2016
2017
1
2
3
4
5
6
7
8
9
10
20
21
22
Exploration
Outlay
$Million
(15)
(15)
(15)
(15)
(20)
Costs--Dry Wells
Costs--Succ Well
Success Rate
Discount Rate
6 $Million/well
8 $Million/well
80%
12.0%
Succ Dev
Outlay
$Million
Dry Devl
Outlay
$Million
Facility
Construction
$Million
(16)
(16)
(24)
(24)
(15)
(15)
(23)
(23)
(10)
(10)
(10)
(10)
Cash
Bonus
$Million
(200)
(40)
NPF CALCULATIONS
E&P Cash
Oil/Gas
Venture Flow Production
Year Year Year
MBbbl
[A]
1990
1
1991
2
1992
3
1993
4
0
1994
5
1
1995
6
2
1996
7
3
73
1997
8
4
255
1998
9
5
892
1999
10
6
3122
2000
11
7
5475
2001
12
8
5475
2002
13
9
5475
2003
14
10
5475
2004
15
11
5475
2005
16
12
4754
2006
17
13
3559
2007
18
14
2664
2008
19
15
1995
2009
20
16
1493
2010
21
17
1118
2011
22
18
837
2012
23
19
627
2013
24
20
469
SUM
49233
80.0%
CAPEX:
Tangible Expensed Depletable
($Million) ($ Million) ($ Million)
[F]
[G]
($15.000) ($200.000)
($15.000)
($15.000)
($15.000)
($20.000) ($4.000)
($26.000) ($19.000)
($26.000) ($15.000)
($34.000) ($23.000)
($34.000) ($23.000)
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
(94.000) (61.000) (200.000)
OPEX :
3.0%
Est
$2.00
5.0%
10.0%
Cost of
Prod Cost S&L Taxes Overhead
Abdnm
($Million)
($Million) ($Million) ($Million)
[H]
[I]
[J]
[K]
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.198)
$0.000
$0.000
($0.196)
($0.546)
($0.053) ($0.196)
($0.910)
($0.207) ($0.194)
($2.184)
($0.776) ($0.194)
($6.644)
($2.999) ($0.199)
($11.350)
($5.751) ($0.198)
($11.350)
($5.751) ($0.198)
($11.350)
($5.751) ($0.198)
($11.350)
($5.751) ($0.198)
($11.350)
($5.423) ($0.198)
($9.908)
($4.566) ($0.199)
($7.518)
($3.205) ($0.199)
($5.728)
($2.319) ($0.199)
($4.390)
($1.617) ($0.199)
($3.386)
($1.165) ($0.200)
($2.636)
($0.806) ($0.200)
($2.074)
($0.578) ($0.200)
($1.654)
($0.414) ($0.200)
($1.338)
($0.296) ($0.200) ($40.000)
(105.666)
(47.429)
(3.569) (40.000)
Mid-Period Discounting
BFTPV
AFTPV Discont Rate
$2,038.727 $1,118.247
5.0%
$848.928
$297.828
8.0%
$377.932
($17.803)
10.0%
$66.132
($0.010)
9.861%
($0.010)
($258.004)
12.5%
($212.596)
($391.305)
15.0%
AFT IRR BP
BFT IRR BP
BFT
7.660
11.660
10.058
AFT
8.109 Years AFDis
12.109 Years AFVen
11.612 Years AFDis
E&P
Venture
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1
2
3
4
5
6
7
8
9
Total
Cash
Flow
Year
10.0%
PVIF
8.0%
CAPEX: Depletable Investment
Total Investments
Tangible Investment Overhead Undisconted Discounted
($Million)
($Million)
($Million)
(100.000)
0
1
2
3
4
5
(15.000)
(25.000)
(25.000)
(25.000)
(25.000)
(115.000)
(100.000)
0.000
0.000
0.000
0.000
(1.500)
(2.500)
(2.500)
(2.500)
(2.500)
(100.000)
0.000
0.000
0.000
(16.500)
(27.500)
(27.500)
(27.500)
(27.500)
($96.225)
$0.000
$0.000
$0.000
($11.670)
($18.010)
($16.675)
($15.440)
($14.297)
(11.500)
(226.500)
($172.317)
ROI
Undiscounted
8.0% Discounted
BFTPV
3.823
1.046
AFTPV
2.985
0.658
PIR
Undiscounted
8.0% Discounted
2.823
0.046
1.985
(0.342)
Tax Loss
C/F
($Million)
[M]
($10.199)
($20.398)
($30.597)
($40.796)
($43.994)
($57.190)
($69.391)
($88.106)
($95.540)
($34.581)
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
AFT
Net Cash
Flow
($Million)
[O]
($109.801)
($9.801)
($9.801)
($9.801)
($17.802)
($37.804)
($36.327)
($32.122)
($15.928)
$84.436
$127.383
$116.927
$113.287
$110.651
$105.362
$87.682
$63.108
$45.148
$32.338
$23.203
$16.683
$12.032
$8.711
$8.377
$805.544
$676.141
Host
Govt
Take
%
[O]
NCF CalculationsCapital
Outlays
Revised Information on the Syndicate Exercise
Np=
50 MMBbls
Royalty:
12.50%
Production Tax
5.00%
Ad valoren Tax
3.00%
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
2013
Exploration
Dry Wells
$Million
($10.000)
($10.000)
($10.000)
($10.000)
Exploration
Success
$Million
8
10
4 $Million/well
6 $Million/well
80%
12.00%
Succ Dev
Outlay
$Million
Dry Devl
Outlay
$Million
Facility
Constr
$Million
($15.000)
($15.000)
($15.000)
($15.000)
($8.000)
($8.000)
($8.000)
($8.000)
($10.000)
($10.000)
($10.000)
($10.000)
($15.000)
Cash
Bonus
$Million
($100.000)
Net
Cash
VentureFlow
Year Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
BFT
Net Cash
Flow
($Million)
($215.199)
($15.199)
($15.199)
($15.199)
($20.198)
($41.195)
($40.252)
($52.370)
($37.305)
$78.124
$150.372
$150.372
$150.372
$150.660
$142.549
$117.002
$82.687
$58.370
$41.141
$28.939
$20.297
$14.179
$9.848
($33.215)
AFT
Net Cash
Flow
($Million)
[O]
($214.802)
($14.802)
($14.802)
($14.802)
($23.802)
($46.005)
($44.515)
($57.873)
($41.535)
$85.166
$159.479
$122.981
$118.949
$115.428
$110.252
$92.523
$67.252
$48.292
$34.720
$25.005
$18.045
$13.060
$9.487
$8.522
BFT
AFT
CNCF
CNCF
($ Million) ($Million)
[K]
[L]
(215.199) (214.802)
(230.397) (229.603)
(245.596) (244.405)
(260.794) (259.206)
(280.992) (283.008)
(322.187) (329.013)
(362.439) (373.528)
(414.810) (431.401)
(452.115) (472.936)
(373.991) (387.770)
(223.619) (228.291)
(73.247) (105.311)
77.125
13.638
227.785
129.066
370.334
239.318
487.336
331.841
570.022
399.093
628.392
447.384
669.533
482.104
698.472
507.109
718.769
525.154
732.948
538.214
742.796
547.701
709.581
556.223
Continous MYD
@NPV(r,n)
12.00%
BFT
DNCF
($Million)
[M]
(202.666)
(12.695)
(11.259)
(9.986)
(11.770)
(21.292)
(18.452)
(21.292)
(13.452)
24.985
42.654
37.830
33.553
29.815
25.020
18.214
11.416
7.148
4.468
2.788
1.734
1.074
0.662
(1.982)
($81.503)
($67.184)
12.00%
AFT
DNCF
($Million)
[O]
(202.292)
(12.363)
(10.965)
(9.725)
(13.871)
(23.778)
(20.406)
(23.530)
(14.977)
27.238
45.237
30.939
26.541
22.843
19.352
14.403
9.285
5.914
3.771
2.409
1.542
0.990
0.638
0.817
($120.807) *
($107.072)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
Total
Cash
Applied
Net Cash
Taxable
Income
Flow Deductions
Flow
Income
Tax
Year
($Million)
($Million) ($ Million) ($Million)
[N]
[K]
[L]
$0.000 ($215.199) ($15.199)
$0.000
$0.000 ($15.199) ($30.397)
$0.000
$0.000 ($15.199) ($45.596)
$0.000
0
$0.000 ($15.199) ($60.794)
$0.000
1
$0.000 ($20.198) ($64.992)
$0.000
2
$0.000 ($41.195) ($85.387)
$0.000
3
$1.542 ($40.252) ($104.786)
$0.000
4
$5.937 ($52.373) ($141.565)
$0.000
5
$22.856 ($37.298) ($168.866)
$0.000
6
$44.730
$78.143 ($113.692)
$0.000
7
$61.600 $150.372
$7.544
$2.640
8
$50.080 $150.372 $111.824
$39.138
9
$39.200 $150.372 $123.344
$43.170
10
$39.200 $150.372 $134.224
$46.978
11
$38.871 $142.317 $125.840
$44.044
12
$33.689 $116.718
$99.384
$34.785
13
$25.158
$82.527
$66.716
$23.351
14
$18.902
$58.217
$46.300
$16.205
15
$14.186
$41.065
$32.026
$11.209
16
$10.723
$28.869
$22.054
$7.719
17
$8.113
$20.271
$15.104
$5.287
18
$6.200
$14.155
$10.261
$3.591
19
$4.776
$9.828
$6.894
$2.413
20
$8.603 ($33.231) ($35.443)
$0.000
Total
$434.365 $953.854
$25.990 $280.530
434.365
708.259
(65.201) 280.530
Tax Loss
C/F
($Million)
[M]
($15.199)
($30.397)
($45.596)
($60.794)
($64.992)
($85.387)
($104.786)
($141.565)
($168.866)
($113.692)
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
Total
Cash
Applied
Net Cash
Taxable
Income
Flow Deductions
Flow
Income
Tax
Year
($Million)
($Million) ($ Million) ($Million)
[N]
[K]
[L]
$0.000 ($215.199) ($15.199)
$0.000
$0.000 ($15.199) ($30.397)
$0.000
$0.000 ($15.199) ($45.596)
$0.000
0
$0.000 ($15.199) ($60.794)
$0.000
1
$0.000 ($20.198) ($64.992)
$0.000
2
$0.000 ($41.195) ($85.387)
$0.000
3
$1.542 ($40.252) ($104.786)
$0.000
4
$5.937 ($52.373) ($141.565)
$0.000
5
$22.856 ($37.298) ($168.866)
$0.000
6
$44.730
$78.143 ($113.692)
$0.000
7
$61.600 $150.372
$7.544
$2.640
8
$50.080 $150.372 $111.824
$39.138
9
$39.200 $150.372 $123.344
$43.170
10
$39.200 $150.372 $134.224
$46.978
11
$38.871 $142.317 $125.840
$44.044
12
$33.689 $116.718
$99.384
$34.785
13
$25.158
$82.527
$66.716
$23.351
14
$18.902
$58.217
$46.300
$16.205
15
$14.186
$41.065
$32.026
$11.209
16
$10.723
$28.869
$22.054
$7.719
17
$8.113
$20.271
$15.104
$5.287
18
$6.200
$14.155
$10.261
$3.591
19
$4.776
$9.828
$6.894
$2.413
20
$8.603 ($33.231) ($35.443)
$0.000
Total
$434.365 $953.854
$25.990 $280.530
434.365
708.259
(65.201) 280.530
Tax Loss
C/F
($Million)
[M]
($15.199)
($30.397)
($45.596)
($60.794)
($64.992)
($85.387)
($104.786)
($141.565)
($168.866)
($113.692)
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
Total
Cash
Applied
Net Cash
Taxable
Income
Flow Deductions
Flow
Income
Tax
Year
($Million)
($Million) ($ Million) ($Million)
[N]
[K]
[L]
$0.000 ($215.199) ($15.199)
$0.000
$0.000 ($15.199) ($30.397)
$0.000
$0.000 ($15.199) ($45.596)
$0.000
0
$0.000 ($15.199) ($60.794)
$0.000
1
$0.000 ($20.198) ($64.992)
$0.000
2
$0.000 ($41.195) ($85.387)
$0.000
3
$1.542 ($40.252) ($104.786)
$0.000
4
$5.937 ($52.373) ($141.565)
$0.000
5
$22.856 ($37.298) ($168.866)
$0.000
6
$44.730
$78.143 ($113.692)
$0.000
7
$61.600 $150.372
$7.544
$2.640
8
$50.080 $150.372 $111.824
$39.138
9
$39.200 $150.372 $123.344
$43.170
10
$39.200 $150.372 $134.224
$46.978
11
$38.871 $142.317 $125.840
$44.044
12
$33.689 $116.718
$99.384
$34.785
13
$25.158
$82.527
$66.716
$23.351
14
$18.902
$58.217
$46.300
$16.205
15
$14.186
$41.065
$32.026
$11.209
16
$10.723
$28.869
$22.054
$7.719
17
$8.113
$20.271
$15.104
$5.287
18
$6.200
$14.155
$10.261
$3.591
19
$4.776
$9.828
$6.894
$2.413
20
$8.603 ($33.231) ($35.443)
$0.000
Total
$434.365 $953.854
$25.990 $280.530
434.365
708.259
(65.201) 280.530
Tax Loss
C/F
($Million)
[M]
($15.199)
($30.397)
($45.596)
($60.794)
($64.992)
($85.387)
($104.786)
($141.565)
($168.866)
($113.692)
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
NCF CalculationsDD&A
Deductions
E&P Cash
Venture Flow
Year Year Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
1996
$Million
($11.520)
($11.520)
($11.520)
($11.520)
($11.520)
($5.440)
($5.440)
($5.440)
($5.440)
($5.440)
5
Rate =
2000 Total
Depletion Allowance
$Million
$Million
$Million
($11.520)
($16.960)
($22.400)
($22.400)
($22.400)
($10.880)
($5.440)
($5.440)
($5.440)
($5.440)
($5.440)
$0.000
$0.000
($0.292)
($1.020)
($3.568)
($12.488)
($21.900)
($21.900)
($21.900)
($21.900)
($21.900)
($19.016)
($14.236)
($10.656)
($7.980)
($5.972)
($4.472)
($3.348)
($2.508)
($1.876)
($106.560) ($196.932)
NCF CalculationsTechnical
Costs
E&P Cash
Oil/Gas
Venture Flow Production
Year Year Year
MBbbl
[A]
1990
1
1991
2
1992
3
1993
4
0
1994
5
1
1995
6
2
1996
7
3
73
1997
8
4
255
1998
9
5
892
1999
10
6
3122
2000
11
7
5475
2001
12
8
5475
2002
13
9
5475
2003
14
10
5475
2004
15
11
5475
2005
16
12
4754
2006
17
13
3559
2007
18
14
2664
2008
19
15
1995
2009
20
16
1493
2010
21
17
1118
2011
22
18
837
2012
23
19
627
2013
24
20
469
SUM
49233
80.0%
CAPEX:
Tangible Expensed Depletable
($Million) ($ Million) ($ Million)
[F]
[G]
($15.000) ($200.000)
($15.000)
($15.000)
($15.000)
($20.000) ($4.000)
($26.000) ($19.000)
($26.000) ($15.000)
($34.000) ($23.000)
($34.000) ($23.000)
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
(94.000) (61.000) (200.000)
OPEX :
3.0%
Est
$2.00
5.0%
10.0%
Cost of
Prod Cost S&L Taxes Overhead
Abdnm
($Million)
($Million) ($Million) ($Million)
[H]
[I]
[J]
[K]
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.198)
$0.000
$0.000
($0.196)
($0.546)
($0.053) ($0.196)
($0.910)
($0.207) ($0.194)
($2.184)
($0.776) ($0.194)
($6.644)
($2.999) ($0.199)
($11.350)
($5.751) ($0.198)
($11.350)
($5.751) ($0.198)
($11.350)
($5.751) ($0.198)
($11.350)
($5.751) ($0.198)
($11.350)
($5.423) ($0.198)
($9.908)
($4.566) ($0.199)
($7.518)
($3.205) ($0.199)
($5.728)
($2.319) ($0.199)
($4.390)
($1.617) ($0.199)
($3.386)
($1.165) ($0.200)
($2.636)
($0.806) ($0.200)
($2.074)
($0.578) ($0.200)
($1.654)
($0.414) ($0.200)
($1.338)
($0.296) ($0.200) ($40.000)
(105.666)
(47.429)
(3.569) (40.000)
Dry Devl
Outlay
$Million
6 $Million/well
8 $Million/well
80%
12.00%
Facility
Constr
$Million
($15.000)
($200.000)
($15.000)
($15.000)
0 ($15.000)
1
($20.000)
2
($16.000) ($15.000) ($10.000)
3
($16.000) ($15.000) ($10.000)
4
($24.000) ($23.000) ($10.000)
5
($24.000) ($23.000) ($10.000)
21
($40.000)
NCF CalculationsDD&A
Deductions
E&P Cash
Venture Flow
Year Year
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Depreciation Expenses
SLD YEAR =
5
Rate =
($2.00)
1996
1997
1998
2000 Total
Depletion Allowance
$Million
$Million
$Million
$Million
$Million
$Million
($10.400)
($10.400)
($10.400)
($10.400)
($10.400)
($4.000)
($4.000)
($4.000)
($4.000)
($4.000)
($10.400)
($14.400)
($18.400)
($18.400)
($18.400)
($8.000)
($4.000)
($4.000)
($4.000)
($4.000)
($4.000)
$0.000
($88.000)
($0.146)
($0.510)
($1.784)
($6.244)
($10.950)
($10.950)
($10.950)
($10.950)
($10.950)
($9.508)
($7.118)
($5.328)
($3.990)
($2.986)
($2.236)
($1.674)
($1.254)
($0.938)
($98.466)
Tax Loss
C/F
($Million)
[M]
($10.199)
($20.398)
($30.597)
($40.796)
($43.994)
($57.190)
($69.391)
($88.106)
($95.540)
($34.581)
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
AFT
Net Cash
Flow
($Million)
[O]
($109.801)
($9.801)
($9.801)
($9.801)
($17.802)
($37.804)
($36.327)
($32.122)
($15.928)
$84.436
$127.383
$116.927
$113.287
$110.651
$105.362
$87.682
$63.108
$45.148
$32.338
$23.203
$16.683
$12.032
$8.711
$8.377
$805.544
$676.141
Host
Govt
Take
%
[O]
NCF CalculationsDD&A
Deductions
E&P Cash
Venture Flow
Year Year
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Depreciation Expenses
SLD YEAR =
5
Rate =
($2.00)
1996
1997
1998
2000 Total
Depletion Allowance
$Million
$Million
$Million
$Million
$Million
$Million
($10.400)
($10.400)
($10.400)
($10.400)
($10.400)
($4.000)
($4.000)
($4.000)
($4.000)
($4.000)
($10.400)
($14.400)
($18.400)
($18.400)
($18.400)
($8.000)
($4.000)
($4.000)
($4.000)
($4.000)
($4.000)
$0.000
($88.000)
($0.146)
($0.510)
($1.784)
($6.244)
($10.950)
($10.950)
($10.950)
($10.950)
($10.950)
($9.508)
($7.118)
($5.328)
($3.990)
($2.986)
($2.236)
($1.674)
($1.254)
($0.938)
($98.466)
NCF CalculationsTechnical
Costs
E&P Cash
Oil/Gas
Venture Flow Production
Year Year Year
MBbbl
[A]
1990
1
1991
2
1992
3
1993
4
0
1994
5
1
1995
6
2
1996
7
3
73
1997
8
4
255
1998
9
5
892
1999
10
6
3122
2000
11
7
5475
2001
12
8
5475
2002
13
9
5475
2003
14
10
5475
2004
15
11
5475
2005
16
12
4754
2006
17
13
3559
2007
18
14
2664
2008
19
15
1995
2009
20
16
1493
2010
21
17
1118
2011
22
18
837
2012
23
19
627
2013
24
20
469
SUM
49233
80.0%
CAPEX:
Tangible Expensed Depletable
($Million) ($ Million) ($ Million)
[F]
[G]
($10.000) ($100.000)
($10.000)
($10.000)
($10.000)
($15.000) ($3.000)
($25.000) ($13.000)
($25.000) ($13.000)
($25.000) ($13.000)
($25.000) ($13.000)
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
$0.000
(75.000) (39.000) (100.000)
OPEX :
3.0%
Est
$2.00
5.0%
10.0%
Cost of
Prod Cost S&L Taxes Overhead
Abdnm
($Million)
($Million) ($Million) ($Million)
[H]
[I]
[J]
[K]
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.199)
$0.000
$0.000
($0.198)
$0.000
$0.000
($0.196)
($0.546)
($0.066) ($0.196)
($0.910)
($0.255) ($0.196)
($2.184)
($0.980) ($0.196)
($6.644)
($3.748) ($0.199)
($11.350)
($6.573) ($0.198)
($11.350)
($6.573) ($0.198)
($11.350)
($6.573) ($0.198)
($11.350)
($6.408) ($0.198)
($11.350)
($6.248) ($0.198)
($9.908)
($5.290) ($0.198)
($7.518)
($3.861) ($0.199)
($5.728)
($2.818) ($0.199)
($4.390)
($2.058) ($0.199)
($3.386)
($1.501) ($0.200)
($2.636)
($1.096) ($0.200)
($2.074)
($0.800) ($0.200)
($1.654)
($0.584) ($0.200)
($1.338)
($0.426) ($0.200) ($40.000)
(105.666)
(55.859)
(3.572) (40.000)
Production Profile
1B: Production Profile
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Profile 2
11
13
Year
15
17
19
21
23
Economic Life
1A: Economic Life
Np=
50,000,000 Bbls
Relevant Formulae:
q=qi*e-Dt
Np=(qi-q)(365)/D
Profile 1
Qi1=
Qf1=
t1=
D=
Np1=
100
15,000
4
-1.25
4,341,565
Economic Life=
bbl/day
bbl/day
years
/year
bbls
20.75
t=(ln(qi/q))/D
Profile 2
Oi2=
Qf2=
t2=
D=
Np2=
15,000
15,000
5
0.00
27,375,000
Profile 3
bbl/day
bbl/day
years
/year
bbls
Qi3=
Qf3=
t3=
D=
Np3=
15,000
500
11.75
0.29
18,283,435
bbl/day
bbl/day
years
/year
bbls