Question

1. A new well is to be drilled in a developed area. The production data for a typical well in the area is shown in the Table below. These are used to forecast the production of the new well over an 11 year life. The initial production rate for wells in the area is bellow the allowable rate and thus there is no period of constant rate production. Other data are as follows:

Crude oil price = $30 per barrel

Royalty = 20%

Operating cost = $1500 /well/month

Mineral tax = 7% of gross working interest income

Investment = $440,000

1. Using midyear discount rate, calculate the ROR (Rate of Return)
2. Assume total production of 50,000 barrels, calculate the profit-to-investment ratio.

Year	Production
1	12400
2	11300
3	8000
4	5300
5	4200
6	3300
7	2600
8	2100
9	1600
10	1300
11	1000
Total	53100

Answer 1

Formulas used :-

Revenue

=C3*30

royalty

=D3*0.2

operating cost

=1500*12

gross working interest income

=D3-E3-F3

aftere tax income

=G3*(1-7%)

ROR	=IRR(H2:H13,10%)

(b)

Production

50000

=C16*30

=D16*0.2

=1500*12*11

=D16-E16-F16

=G16*(1-7%)

profit to investment

=H16/-H2