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The same steps also apply to a multiwell project. Field development projects are constructed by combining individual well models in a realistic time frame. The income tax calculation must be done on a total project basis since oil and gas taxation applies to the total property. An example of a multiwell field extension project is shown in [[:Image:Test.png|Table 3]]. Since the project has a longer life than the example development well, the results are summarized in a slightly different format. [[:Image:Charles-l-vavra-john-g-kaldi-robert-m-sneider_capillary-pressure_3.jpg|Table 4]] presents the production, investment, and tax assumptions for the multiwell extension project.
The same steps also apply to a multiwell project. Field development projects are constructed by combining individual well models in a realistic time frame. The income tax calculation must be done on a total project basis since oil and gas taxation applies to the total property. An example of a multiwell field extension project is shown in [[:Image:Test.png|Table 3]]. Since the project has a longer life than the example development well, the results are summarized in a slightly different format. [[:Image:Charles-l-vavra-john-g-kaldi-robert-m-sneider_capillary-pressure_3.jpg|Table 4]] presents the production, investment, and tax assumptions for the multiwell extension project.
[[File:Charles-l-vavra-john-g-kaldi-robert-m-sneider capillary-pressure 3.jpg|thumbnail|left|'''Table 4.''' Assumptions for example multi well extension project]]]]
[[File:Charles-l-vavra-john-g-kaldi-robert-m-sneider capillary-pressure 3.jpg|thumbnail|left|'''Table 4.''' Assumptions for example multi well extension project]]
==Points to remember==
==Points to remember==
# The present value of most projects will decrease as successively higher corporate discount rates are utilized. The exception would be an acceleration project<ref name=Thompson_etal_1985>Thompson, R. S., and J. D. Wright, 1985, Oil property evaluation, 2nd ed.: Golden, CO, Thompson-Wright Associates, 212 p.</ref>. The discount rate at which the present value is zero is called the ''discounted cash flow rate of return'' ([[Key economic parameters|DCFROR]]).
# The present value of most projects will decrease as successively higher corporate discount rates are utilized. The exception would be an acceleration project<ref name=Thompson_etal_1985>Thompson, R. S., and J. D. Wright, 1985, Oil property evaluation, 2nd ed.: Golden, CO, Thompson-Wright Associates, 212 p.</ref>. The discount rate at which the present value is zero is called the ''discounted cash flow rate of return'' ([[Key economic parameters|DCFROR]]).
# All figures and estimates should be objective. You should neither purposefully ''overestimate'' (to sell the deal) nor ''underestimate'' (to be conservative and thereby protect yourself from being wrong). Be professional, give it your best shot
# All figures and estimates should be objective. You should neither purposefully ''overestimate'' (to sell the deal) nor ''underestimate'' (to be conservative and thereby protect yourself from being wrong). Be professional, give it your best shot
# It is a good idea to make several cash flow "cases" using different assumptions for reserves, number of wells, initial potentials (IPs), and decline rates. This is easy to do using modern software. Such ''sensitivity analyses'' give the decision maker a better idea of the range of possibilities for project outcomes. However, one shortcoming of many sensitivity analyses is that no
# It is a good idea to make several cash flow "cases" using different assumptions for reserves, number of wells, initial potentials (IPs), and decline rates. This is easy to do using modern software. Such ''sensitivity analyses'' give the decision maker a better idea of the range of possibilities for project outcomes. However, one shortcoming of many sensitivity analyses is that no probability of occurrence can be assigned to a given case. As a result, the decision maker has an idea of the ''range'' of possible outcomes, but no sense of the ''chance'' of occurrence of any one outcome Fortunately, this deficiency is readily correctable by using probabilistic ranges for key variables and Monte Carlo simulation to combine such variables. (For more information on ranges and probabilities, see the chapter on "Uncertainties Impacting Reserves, Revenue, and Costs.")
probability of occurrence can be assigned to a given case. As a result, the decision maker has an idea of the ''range'' of possible outcomes, but no sense of the ''chance'' of occurrence of any one outcome Fortunately, this deficiency is readily correctable by using probabilistic ranges for key variables and Monte Carlo simulation to combine such variables. (For more information on ranges and probabilities, see the chapter on "Uncertainties Impacting Reserves, Revenue, and Costs.")
# A final step from such sensitivity analyses is the identification of critical threshold values necessary for the project to be commercial. In particular, requisite values for net pay, [[porosity]], and initial production rate may be crucial in helping the well site geologist or engineer to make critical decisions on testing, [[stimulation]], completion, or abandonment. These predetermined values should accompany the geologist or engineer to the well site.
# A final step from such sensitivity analyses is the identification of critical threshold values necessary for the project to be commercial. In particular, requisite values for net pay, [[porosity]], and initial production rate may be crucial in helping the well site geologist or engineer to make critical decisions on testing, [[stimulation]], completion, or abandonment. These predetermined values should accompany the geologist or engineer to the well site.
# There are many commercial computer programs available for both mainframe and microcomputer hardware that carry out cash flow modeling routinely and quickly, allowing many different values to be input for the significant parameters. Use of such software greatly simplifies the process of cash flow modeling once the procedure is fully understood. But for those who want to test their understanding, construct your model from scratch on a spreadsheet. It is not that hard and may prove to be an invaluable learning exercise.
# There are many commercial computer programs available for both mainframe and microcomputer hardware that carry out cash flow modeling routinely and quickly, allowing many different values to be input for the significant parameters. Use of such software greatly simplifies the process of cash flow modeling once the procedure is fully understood. But for those who want to test their understanding, construct your model from scratch on a spreadsheet. It is not that hard and may prove to be an invaluable learning exercise.
==See also==
==See also==