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→Calculations in the cash flow model
<sub>Annual operating cost is $24,000/well. Note in the last four years the operating costs are not a multiple of $24,000. This is because the typical well produces only a fraction of a year in the eighth year.</sub><br>
<sub>Annual operating cost is $24,000/well. Note in the last four years the operating costs are not a multiple of $24,000. This is because the typical well produces only a fraction of a year in the eighth year.</sub><br>
<sub>Incremental tax rate is 34%</sub><br>
<sub>Incremental tax rate is 34%</sub><br>
<sub>Oil price is $18.00/bbl. Gas price is $1.50/MCF</sub><br>
<sub>Cost of Failure is assumed to be the after tax cost of 2 dry holes.</sub><br>
:<sub>(750,000 x (1 - 0.34) x 2 = $990,000)</sub><br>
<sub>Assumed investment schedule:</sub><br>
:<sub>Time 0 investments made on 1-1-91:</sub><br>
::<sub>Lease bonus and G&G = $125,000</sub><br>
::<sub>IDC's (100% expensed for tax calculation) = $950,000 (for one completion)</sub><br>
::<sub>Tangible expenditures (depreciable basis for tax calculation) = $300,000</sub><br>
:<sub>Other investments made during 1991:</sub><br>
::<sub>Lease bonus and G&G = $200,000</sub><br>
::<sub>IDC's (100% expensed for tax calculation) = $950,000 (for one completion)</sub><br>
::<sub>DHC's (100% expensed for tax calculation) = $1,500,000 (for two dry holes)</sub><br>
::<sub>Tangible expenditures (depreciable basis for tax calculation) = $600,000</sub><br>
:<sub>Investments made during 1992:</sub><br>
::<sub>Lease bonus and G&G = $100,000</sub><br>
::<sub>IDC's (100% expensed for tax calculation) = $950,000 (for one completion)</sub><br>
::<sub>Tangible expenditures (depreciable basis for tax calculation) = $300,000</sub><br>
:<sub>Investments made during 1993:</sub><br>
::<sub>IDC's (100% expensed for tax calculation) = $950,000 (for one completion)</sub><br>
::<sub>Tangible expenditures (depreciable basis for tax calculation) = $300,000</sub><br>
<sub>Assumed Production Schedule:</sub><br>
:<sub>The production forecast for the typical well in the Example Development Well was used for the Multiwell Extension Project. A typical well was assumed to be placed on production at the beginning of each of the years 1991, 1992, 1993, and 1994.</sub><br>
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.
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.