Question: Pontiac Producing Company PPC is a domestic producer of natural
Pontiac Producing Company (PPC) is a domestic producer of natural gas. The firm is considering the purchase of some gas- producing property in the Bakin Shale located in North Dakota. The property has estimated production volumes of 100 Million cubic feet (100,000 MCF) per year for the next five years. However, the price of natural gas is currently very low, selling for $ 4 per MCF. The projected demand for natural gas is growing, however, with the prospect of using it as fuel by large trucking and bus firms. In fact, the forward price of gas for the next five years is $ 4.50, $ 4.75, $ 5.30, $ 6.00, and $ 6.50. If PPC decides to sell its production forward, what is your forecast of the revenues it might receive from the Bakin project?
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