PETROLEUM ECONOMICS

ASSIGNMENT DUE DATE 27/03/2015

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 below the allowable rate and thus there is no period of
constant rate production. Other data are as follows:
Crude oil price = $30/bbl
Royalty = 20%
Operating cost = $1500/well/month
Mineral tax = 7% of gross working interest income
Investment = $440,000
(a) Using midyear discount rate, calculate the ROR.
(b) Assume total production of 50,000 bbl, calculate the profit-to-investment
ratio.
Determine if this well is a financially attractive investment on a before tax basis.
Year Production
1
12,400
2
11,300
3
8,000
4
5,300
5
4,200
6
3,300
7
2,600
8
2,100
9
1,600
10
1,300
11
1,000
Total
53,100