Calculate yearly net cash flow BFIT for this investment

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Problem - The reservoir pressure in the Smiley Field has declined to the point that Well 15-2 will no longer flow naturally. As a result, it has been decided that a down-hole sucker rod pump, a set of rods, and surface unit having a service life of six years will be purchased for $160,000. The pump will cause the well to produce the oil production as shown in the following table.

Year

8/8 Prod

1

2000

2

1500

3

1200

4

1200

5

1000

6

900

Your working interest is 100%. Your net revenue interest is 75%. Operating costs are estimated to be $40,000 the first year and will increase by $2,000 each of the following five years. The pump has no salvage value. Calculate your revenue using a constant oil price of $85.00/Bbl.

Required - Calculate yearly net cash flow BFIT for this investment. Draw the cash flow diagram.

Reference no: EM133044639

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