Forward price curve to value risky investments

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Reference no: EM13826160

USING THE FORWARD PRICE CURVE TO VALUE RISKY INVESTMENTS Pontiac Producing Company (PPC) is a domestic producer of natural gas. The firm is consider-ing 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 cur-rently 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, 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 re-ceive from the Bakin project?

Reference no: EM13826160

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