An oil and gas investor is considering the acquisition of

Assignment Help Accounting Basics

Reference no: EM13596882

An oil and gas investor is considering the acquisition of two fields.
Both fields have the same production profiles:
• production starts in 2013 and averages 250 barrels of oil per day (bopd) during that year
• the production ramps up and reaches a plateau production rate of 1,000 bopd in 2015

the plateau is maintained for 5 years
production declines by 30% per annum thereafter

• the field is abandoned at the end of the year where the average production is lower than 250 bopd

Both fields have the same cost profiles:
• over the life of the field, the capex represents $10 dollars per barrel produced
• 25% of the capex is spent in 2011, 40% is spent in 2012 and 35% is spent in 2013 (the capex is fully depreciated when spent)
• opex represents $15 per barrel produced, in the year these are produced

The investor's cash flow in both cases is defined as:
+ Field Revenue
- Field Costs
= Field Cash Flow
- Taxes
= Investor Cash Flow

The taxes are calculated as follows:
* Field 1 Tax = 30% of Field Cash Flow
* Field 2 Tax = 20% of Field Revenues

Which investment is more attractive at an oil price of:
* $35 per barrel
* $70 per barrel

What is the oil price, within the $35 to $70 per barrel range, where:
* the undiscounted Investor Cash Flow of both fields is equivalent
* the discounted Investor Cash Flow, using a 15% discount rate, of both fields is equivalent

Present your analysis or though process.

Reference no: EM13596882

Questions Cloud

Primary and secondary amines form hydrogen bonds among : primary and secondary amines form hydrogen bonds among themselves. assume you have a solution of ethanamine ethylamine.

A suppose that a channel has a slope of m 001 or 1 and a : design of open channels - to protect cities from flooding during heavy rains open channels are sometimes constructed to

You are thinking of investing in a field that may have : you are thinking of investing in a field that may have commercial amounts of oil. based on the existing data of the

A moderate wind accelerates a pebble over a horizontal xy : a moderate wind accelerates a pebble over a horizontal xy plane with a constant acceleration a 5.00 ms2i 7.00ms2j. at

An oil and gas investor is considering the acquisition of : an oil and gas investor is considering the acquisition of two fields. both fields have the same production profiles

The company uses the weighted-average cost method in its : miller company manufacturers a product for which materials are added at the beginning of the manufacturing process. a

Using all four demographic reports overview trend : using all four demographic reports overview trend employment and population detail for zip code 60614 choose four

The balance sheet of hidden valley farms reports total : the balance sheet of hidden valley farms reports total assets of 450000 and 550000 at the beginning and end of the year

Earth wind and fire earth requires 80 machine setups wind : simpson co. produces three products earth wind and fire. earth requires 80 machine setups wind requires 60 setups and

User Account

All Pages