An oil and gas producing company owns 45,000 acres of land in a southeastern sta
ID: 1142915 • Letter: A
Question
An oil and gas producing company owns 45,000 acres of land in a southeastern state. It operates 650 wells which produce 21,000 barrels of oil per year and 1.5 million cubic feet of natural gas per year. The revenue from the oil is $2,100,000 per year and for natural gas the annual revenue is $584,000 per year. What bid should be made to purchase this property if the potential buyer is hoping to make 15% per year on his investment over a period of 10 years. Click the icon to view the interest and annuity table for discrete compounding when 1-15% per year. $million or less should be offered for the property. (Round to two decimal places.)Explanation / Answer
Total annual revenue ($) = Annual revenue from oil + Annual revenue from gas = 2,100,000 + 584,000
= 2,684,000
Bid amount = Present worth of total annual revenue = 2,684,000 x P/A(15%, 10) = 2,684,000 x 5.0188
= 13,470,459.20