Produce a histogram for the well npv

Reference no: EM132043838

Problem: A natural gas field is drilled in Year 0 and produces gas in Years 1 through 5. Produce a histogram for the well's NPV and calculate the 5% VaR and CVaR under the following assumptions:

The drilling cost is uniformly distributed between $800,000 and $1,500,000, and is incurred only in Year 0. There are no other operational costs for the natural gas field.

Production in Year 1 follows a triangular distribution with minimum 100,000 million BTU (MBTU), maximum production 500,000 MBTU and mode 200,000 MBTU.

Production in years 2 through 5 declines by 10% per year.

The price in each year is normally distributed with a mean of $4 per MBTU and a standard deviation of $1 per MBTU (this means that negative prices are technically possible). Prices in each year (1 through 5) are independent, so you will need to generate a new random variable for the price in each year.

The gas operator faces a tax rate of 35%.

Reference no: EM132043838

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