Royal Queen Petroleum has the following data for its Bayou Field: Property cost (acquisition cost)....... $ 60,000 Drilling cost (one well)................... 280,000 Estimated selling cost per bbl..................80 Estimated lifting cost per bbl...................26 State severance tax..................................5% Royalty interest...................................12.5% The company is considering two drilling plans which are estimated to have the following production: Well A: 600 bbl per month. Completion cost, $500,000. Well B: 1,000 bbl per month. Completion cost, 800,000.
Required: a. Determine the number of months needed for payout on each plan.
b. If the company depends on the payback method for its investment decision, which plan will be more preferred?
Please give positive ratings so I can keep answering. If you have any queries please comment. Thanks! |
Royal Queen Petroleum | Amount $ | ||
Particulars | Well A | Well B | |
Property cost | 60,000.00 | 60,000.00 | |
Drilling cost | 280,000.00 | 280,000.00 | |
Completion cost | 500,000.00 | 800,000.00 | |
Total cash outflow | 840,000.00 | 1,140,000.00 | A |
Selling cost per bbl | 80.00 | 80.00 | B |
Estimated lifting cost per bbl | (26.00) | (26.00) | C |
State severance tax @ 5% | (4.00) | (4.00) | D |
Royalty interest @ 12.5% | (10.00) | (10.00) | E |
Net income per bbl | 40.00 | 40.00 | F=B+C+D+E |
Estimated production per month | 600.00 | 1,000.00 | G |
Net income per month | 24,000.00 | 40,000.00 | H=F*G |
Payback Period (months) | 35.00 | 28.50 | I=A/H |
Plan B will be more preferred as its payback period is less. | |||
Royal Queen Petroleum has the following data for its Bayou Field: Property cost (acquisition cost)....... $...
Exercise 2 (6 marks) ENOV Oil has the following data in connection with lease Oud Maitha: $200,000 600,000 650,000 75 35 596 1/8 Proved Drilling cost Estimated completion cost Estimated selling price per barrel Estimated lifting cot per barrel State severance tax rate cost Royalty interest The company is sole owner of the working interest Required ed to be 2000 barels,is the well profitable? Explain. tal production would it take to cover completion costs? 1) If reserves are determin 2)...
HDT Truck Company HDT Truck Company has been located in Crown Point, Indiana, since 1910. Its only products— large trucks—are built to individual customer specifications. The firm once produced automobiles but dropped out of the auto business in 1924. The firm nearly went out of business in the late 1930s, but by 1940 its fortunes were buoyed by receipt of several military contracts for tank retrievers—large-wheeled vehicles that can pull a disabled tank onto a low trailer and haul it...