Question

There is a project for developing a petroleum field with the following assumptions:

Production = 1,600 bbl
Oil price = $50/bbl
Production tax rate = 4%
OPEX (excl. tax) = $50,000
Royalty = 1/8
Working Interest (WI)
Company A (operator)   80%
Company B                  20%
Assume that you are working for company B. Compute the following values for your company: (a) NRI, (b) Share of production, (c) Revenue, (d) Production tax, (e) Share of OPEX, (f) Cash flow.

Answer 1

Since the question does not mention any time peroid, so it will be taken as full life of project.

(a)NRI

Note: Full form of NRI is not given so this part has been solved as considering that it is asking either Revenue/ Operating Income or Net Income.

Income Statement of Complete Project

Particulars	Amount (in $)
Sale	80000
- OPEX	-50000
Operation Income	30000
- Royalty	-10000
Net Income	20000
- Production Tax @ 4%	-800
Net Income after Tax	19200

B's Share in Operating Income = 20% of $30,000 = $6,000

B's Share in Net Income after tax = 20% of $19,200 = $3,840

(b) Share of Production

B's Share in Project = 20%

Therefore,

B's Share in Production = 1600 bbl x 20% = 320 bbl

(c) Revenue

Sales Revenue = 1600 bbl x $50 = $80,000

B's Share 20% of Revenue = 20% of $80,000 = $16,000

(d) Production Tax

Production Tax as calculated in (a) above = $800

B's share = 20% of $800 = $160

(e) Share of OPEX

Total OPEX = $50,000

B's share = 20% of $50,000 = $10,000

(f) Cash flow

Cash Flow Statement of B's Share in the Project

	Cash Sales		16000
Less:	OPEX		-10000
	Royalty		-2000
	Profit		4000
Less:	Tax		-160
	Cash Profit		3840