Question
A petroleum geologist estimates that the present annual production of 300000 barrels of oil from a group of 10 wells will decrease as follows over a 19 year life:
Years 1 - 4, 300000 barrels/year,, Years 5-10, 215000 barrels/year, 11-15, 125000 and 16-19 50000 barrels/year. The annual value of the petroleum product has been estimated as follows: Years 1-5, $8 er barrel, 6-12 $10 per barrel, 13-19 $12.00 per barrel. If the cost of capital is 12% what is the prpesent value of the anticipated petroleum revensues.
Explanation / Answer
No of years Barrels/year Price per Barrel Total Revenue per year Applying Formula Present Value 1 300,000.00 8 2,400,000.00 `=2400000/(1+0.12)^1 2,142,857.14 2 300,000.00 8 2,400,000.00 `=2400000/(1+0.12)^2 1,913,265.31 3 300,000.00 8 2,400,000.00 `=2400000/(1+0.12)^3 1,708,272.59 4 300,000.00 8 2,400,000.00 `=2400000/(1+0.12)^4 1,525,243.39 5 215,000.00 8 1,720,000.00 `=1720000/(1+0.12)^5 975,974.19 6 215,000.00 10 2,150,000.00 `=2150000/(1+0.12)^6 1,089,256.91 7 215,000.00 10 2,150,000.00 `=2150000/(1+0.12)^7 972,550.81 8 215,000.00 10 2,150,000.00 `=2150000/(1+0.12)^8 868,348.94 9 215,000.00 10 2,150,000.00 `=2150000/(1+0.12)^9 775,311.55 10 215,000.00 10 2,150,000.00 `=2150000/(1+0.12)^10 692,242.46 11 125,000.00 10 1,250,000.00 `=12500000/(1+0.12)^11 359,345.13 12 125,000.00 10 1,250,000.00 `=12500000/(1+0.12)^12 320,843.87 13 125,000.00 12 1,500,000.00 `=1500000/(1+0.12)^13 343,761.29 14 125,000.00 12 1,500,000.00 `=1500000/(1+0.12)^14 306,929.72 15 125,000.00 12 1,500,000.00 `=1500000/(1+0.12)^15 274,044.39 16 50,000.00 12 600,000.00 `=600000/(1+0.12)^16 97,873.00 17 50,000.00 12 600,000.00 `=600000/(1+0.12)^17 87,386.60 18 50,000.00 12 600,000.00 `=600000/(1+0.12)^18 78,023.75 19 50,000.00 12 600,000.00 `=600000/(1+0.12)^19 69,664.07
Net present Value 14,601,195.11