A petroleum geologist estimates that the present annual production of 300000 bar

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

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