Suppose an oil company is considering whether to develop production facilities for a newly discovered oil...
Suppose an oil company is considering whether to develop production facilities for a newly discovered oil field on lands owned by a state government. If the firm spends $2 billion in present value in capital costs, it could install facilities capable of producing 80,000 barrels per day. Annual operating costs for the oil field are anticipated to be $30 per barrel produced. The company expects production from the field to start at 80,000 barrels per day but then decline at 9 percent annually indefinitely. The firm has to pay its investors a 10 percent annual return.
The firm's managers are risk-averse, and decide to make their investment decisions based not on the anticipated oil price, but rather on profits that would result if the oil price were $50 per barrel. Would the company decide to make the investment?
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Suppose an oil company is considering whether to develop
production facilities for a newly discovered oil...
Suppose an oil company is considering whether to develop production facilities for a newly discovered oil...
Suppose an oil company is considering whether to develop production facilities for a newly discovered oil field on lands owned by a state government. If the firm spends $2 billion in present value in capital costs, it could install facilities capable of producing 80,000 barrels per day. Annual operating costs for the oil field are anticipated to be $30 per barrel produced. The company expects production from the field to start at 80,000 barrels per day but then decline at...
4. Exendine Oil, an exploration and development company located in Okesa, Oklahoma plans to bid for...
4. Exendine Oil, an exploration and development company located in Okesa, Oklahoma plans to bid for a one-year option to horizontally drill and fracture the old Drummond oil field. The option gives Exendine the right to drill the well anytime during the next year. The option expires at the end of one year if the firm fails to begin drilling. The total costs of drilling and fracturing the well would be $3.10 million. The well is certain to produce 20,000...
Novak Drilling Company has leased property on which oil has been discovered. Wells on this property...
Novak Drilling Company has leased property on which oil has been discovered. Wells on this property produced 17,330 barrels of oil during the past year that sold at an average sales price of $62 per barrel. Total oil resources of this property are estimated to be 232,200 barrels. The lease provided for an outright payment of $565,000 to the lessor (owner) before drilling could be commenced and an annual rental of $35,595. A premium of 5% of the sales price...
3. Understanding changes in equilibrium price and quantity Suppose you are an analyst in the oil...
3. Understanding changes in equilibrium price and quantity Suppose you are an analyst in the oil refinery industry and are responsible for estimating the equilibrium price and quantity of home heating oil. To do so, you must consider factors that can affect the supply of and demand for heating oil. Determinants of the demand for heating oil include household income, the price of an oil furnace (a complementary good for heating oil), and the price of natural gas (a substitute...
Wildhorse Drilling Company has leased property on which oil has been discovered. The oil wells on this property produced 16,300 barrels of oil during the past year that sold at an average sales price of $61 per barrel. Total oil resources of this property
Wildhorse Drilling Company has leased property on which oil has been discovered. The oil wells on this property produced 16,300 barrels of oil during the past year that sold at an average sales price of $61 per barrel. Total oil resources of this property are estimated to be 272,000 barrels.The lease provided for an outright payment of $557,600 to the lessor (owner) before drilling could be commenced and an annual rental of $27,710. A premium of 5% of the sales price of every barrel of oil removed is...
Thank you!! (2 points) An oil company discovered an oil reserve of 130 million barrels. For time t > 0, in years, the company's extraction plan is a linear declining function of time as f...
Thank you!!
(2 points) An oil company discovered an oil reserve of 130 million barrels. For time t > 0, in years, the company's extraction plan is a linear declining function of time as follows: where q(t) is the rate of extraction of oil in millions of barrels per year at time t and b 0.05 and a -14. (a) How long does it take to exhaust the entire reserve? time years (b) The oil price is a constant 30...
QUESTION TWO A petroleum company has three major oil fields and five oil refineries. The shipping...
QUESTION TWO A petroleum company has three major oil fields and five oil refineries. The shipping costs from the fields to the refineries, fields are as shown in the table Refinery Capacity Refinery Field Production Barrels per day 20,000 25,000 30,000 Barrels per day 10,000 13,000 13,000 16,000 18,000 2 Field 1 2 A 400 350 370 Cost per Barrel (K) B C 300 330 350 380 300 400 D 380 320 350 E 360 350 340 (1) (ii) Determine...
An oil company is drilling a series of new wells on the perimeter of a producing...
An oil company is drilling a series of new wells on the perimeter of a producing oil field. About 40% of the new wells will be dry. Even if a new well strikes oil, there is still uncertainty about the amount of oil produced: 30% of new wells which strike oil produce only 3,000 barrels a week; 70% produce 40,000 barrels a week. (a) Forecast the annual revenues from a new perimeter well. Use a future oil price of $100...
A company is considering drilling a development well. Wellsite preparation, drilling and testing ...
A company is considering drilling a development well. Wellsite preparation, drilling and testing of the well is expected to cost $2.2 million. Completion of the well and the field equipment necessary to get the well ready for production (wellhead, tubing, flowline, etc.) would cost $1.4 million. Company geologists have suggested that there is a 20% probability that the well will be dry. If that is the case, abandonment and reclamation costs would be $150,000. In the event the well is...
You are the CEO of a crude oil producing company. Through your staff, you have complete...
You are the CEO of a crude oil producing company. Through your staff, you have complete cost information. At this current production level, 2000 barrels per day, your marginal cost of a barrel of crude is $35 with an average variable cost of $30 and average total cost of $40. What is your daily profit or loss? Show your calculation. Should you stay at this level of production or increase or decrease production? Explain your position clearly. What do you...
3. Understanding changes in equilibrium price and quantity Suppose you are an analyst in the oil refinery industry and are responsible for estimating the equilibrium price and quantity of home heating oil. To do so, you must consider factors that can affect the supply of and demand for heating oil. Determinants of the demand for heating oil include household income, the price of an oil furnace (a complementary good for heating oil), and the price of natural gas (a substitute...
Thank you!!
(2 points) An oil company discovered an oil reserve of 130 million barrels. For time t > 0, in years, the company's extraction plan is a linear declining function of time as follows: where q(t) is the rate of extraction of oil in millions of barrels per year at time t and b 0.05 and a -14. (a) How long does it take to exhaust the entire reserve? time years (b) The oil price is a constant 30...
QUESTION TWO A petroleum company has three major oil fields and five oil refineries. The shipping costs from the fields to the refineries, fields are as shown in the table Refinery Capacity Refinery Field Production Barrels per day 20,000 25,000 30,000 Barrels per day 10,000 13,000 13,000 16,000 18,000 2 Field 1 2 A 400 350 370 Cost per Barrel (K) B C 300 330 350 380 300 400 D 380 320 350 E 360 350 340 (1) (ii) Determine...
An oil company is drilling a series of new wells on the perimeter of a producing oil field. About 40% of the new wells will be dry. Even if a new well strikes oil, there is still uncertainty about the amount of oil produced: 30% of new wells which strike oil produce only 3,000 barrels a week; 70% produce 40,000 barrels a week. (a) Forecast the annual revenues from a new perimeter well. Use a future oil price of $100...
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