Q.

The table below shows oil production and well drilling for a water-flood field
Year

Wells (inj + prod)

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

0
15
10
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
RESERVES

Oil rate (bopd)

0
13,333
26,667
40,000
40,000
40,000
40,000
40,000
40,000
32,877
27,223
22,697
19,045
16,075
13,644
11,642
9,981
8,597
7,437
6,460
5,633
168,379,042

Facilities costs are assumed to be spread evenly over three years. If wells cost $10 mm each and total facilities
costs are $1.2 billion, use the software provided ('economic indicators') to calculate Discounted Cash Flow, Net
Present Value and PI over 20 years of production assuming an oil price of $100/bbl, a discount rate of 10%,
taxation at 40% and inflation at 3%. Plot the results.
Use the software provided to determine the real rate of return (RROR)
Look at the effect of changing the following (keeping everything else constant)
1.
2.
3.

reducing discount rate to 6%

decreasing the oil price to $80/bbl
increasing facilities costs to $ 1.8 billion