. Snappy Petroleum is planning to drill a well. The expected costs and revenues in terms...
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. Snappy Petroleum is planning to drill a well. The expected costs and revenues in terms of money in "Time 0" are: the drilling cost: $2,050.000; the variable costs of production: $19 per barrel; • the fixed costs: $234,000. All these costs are subject to inflation for the next years. • Cost inflation is 3% per year. The well is expected to produce for 20 years of economic life, beginning in "Time 1", with 90 barrels per day. • The production is expected to decrease at the rate of 10% per year. • The initial oil price (in "Time 0") is $82 per barrel, and it is expected that this price increases at the rate of 2% per year. • The Crown Royalty is 25% and Overriding Royalty is 10%. Note: If 7% increases by 1 percentage point, then you get 8%. If 7% increases by 1%, then you get 7.07%. The federal income tax rate is 30% and the provincial income tax amounts to 45% of the federal income tax. • The working interest in the well is 85%. The discount interest rate is 8%. (a) When does the well reach the end of its economic life? (b) Calculate the NPV and the IRR for 8%, 10%, and 12% discount rates. Discuss if it is worth Snappy Petroleum undertaking this project. (c) Using a Data Table command, determine the NPV for changes in initial daily production of -15%, -10%, -5%, 0%, 5%, 10%, and 15%. Use a discount rate of 8%. (d) Using a Data Table command, determine the NPV for changes in initial oil price of 15%, -10%, -5%, 0%, 5%, 10%, and 15%. Use a discount rate of 8%. (e) To which factor is the NPV more sensitive, to changes in the initial oil price or to changes in the initial daily production? Support your answer by a graph. What does it imply for Snappy Petroleum? (f) Using the Data Table command determine the NPV for changes in both initial oil price and variable cost, for changes of -15%, -10%, -5%, 0%, 5%, 10%, and 15%. Use a discount rate of 8%. . Snappy Petroleum is planning to drill a well. The expected costs and revenues in terms of money in "Time 0" are: the drilling cost: $2,050.000; the variable costs of production: $19 per barrel; • the fixed costs: $234,000. All these costs are subject to inflation for the next years. • Cost inflation is 3% per year. The well is expected to produce for 20 years of economic life, beginning in "Time 1", with 90 barrels per day. • The production is expected to decrease at the rate of 10% per year. • The initial oil price (in "Time 0") is $82 per barrel, and it is expected that this price increases at the rate of 2% per year. • The Crown Royalty is 25% and Overriding Royalty is 10%. Note: If 7% increases by 1 percentage point, then you get 8%. If 7% increases by 1%, then you get 7.07%. The federal income tax rate is 30% and the provincial income tax amounts to 45% of the federal income tax. • The working interest in the well is 85%. The discount interest rate is 8%. (a) When does the well reach the end of its economic life? (b) Calculate the NPV and the IRR for 8%, 10%, and 12% discount rates. Discuss if it is worth Snappy Petroleum undertaking this project. (c) Using a Data Table command, determine the NPV for changes in initial daily production of -15%, -10%, -5%, 0%, 5%, 10%, and 15%. Use a discount rate of 8%. (d) Using a Data Table command, determine the NPV for changes in initial oil price of 15%, -10%, -5%, 0%, 5%, 10%, and 15%. Use a discount rate of 8%. (e) To which factor is the NPV more sensitive, to changes in the initial oil price or to changes in the initial daily production? Support your answer by a graph. What does it imply for Snappy Petroleum? (f) Using the Data Table command determine the NPV for changes in both initial oil price and variable cost, for changes of -15%, -10%, -5%, 0%, 5%, 10%, and 15%. Use a discount rate of 8%.
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a When does the well reach the end of its economic life The well is expected to produce for 20 years of economic life beginning in Year 1 Production is expected to decrease by 10 each year After 20 ye... View the full answer
Related Book For
Business Statistics
ISBN: 9780133899122
3rd Canadian Edition
Authors: Norean D. Sharpe, Richard D. De Veaux, Paul F. Velleman, David Wright
Posted Date:
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