Changes

:::^{IDC's (100 % expensed for tax calculation) = $950,000}<br>

:::^{IDC's (100 % expensed for tax calculation) = $950,000}<br>

:::^{Tangible expenditures (depreciable basis for tax calculation) = $300,000}<br>

:::^{Tangible expenditures (depreciable basis for tax calculation) = $300,000}<br>

::<sup>Estimated dry hole cost if the well is unsuccessful is $750,000 (After-tax = $750,000 x (1 - 0.34) = $495,000)

::<sup>Estimated [[dry hole]] cost if the well is unsuccessful is $750,000 (After-tax = $750,000 x (1 - 0.34) = $495,000)

A completed cash flow time diagram is shown in Table 2 along with the equivalent net present value calculation.

A completed cash flow time diagram is shown in Table 2 along with the equivalent net present value calculation.

:^{Incremental tax rate is 34%}<br>

:^{Incremental tax rate is 34%}<br>

:^{Oil price is $18.00/bbl. Gas price is $1.50/MCF}<br>

:^{Oil price is $18.00/bbl. Gas price is $1.50/MCF}<br>

:^{Cost of Failure is assumed to be the after tax cost of 2 dry holes.}<br>

:^{Cost of Failure is assumed to be the after tax cost of 2 [[dry hole]]s.}<br>

::^{(750,000 x (1 - 0.34) x 2 = $990,000)}<br>

::^{(750,000 x (1 - 0.34) x 2 = $990,000)}<br>

:^{Assumed investment schedule:}<br>

:^{Assumed investment schedule:}<br>

==Points to remember==

==Points to remember==

Here are a few final points that are important to remember concerning cash flow models:

Here are a few final points that are important to remember concerning cash flow models:

# Cash flow analysis is the third step in evaluating a proposed (or existing) petroleum property; it occurs after estimating (a) the reserves, rates, and costs and (b) the chance of success.  

# Cash flow analysis is the third step in evaluating a proposed (or existing) [[petroleum]] property; it occurs after estimating (a) the reserves, rates, and costs and (b) the chance of success.  

# Do not carry out cash flow analysis of "risked reserves"—the cash flow model is built on the success case

# Do not carry out cash flow analysis of "risked reserves"—the cash flow model is built on the success case

# Net cash flow is the sum of outlays and inflows.

# Net cash flow is the sum of outlays and inflows.

[[Category:Economics and risk assessment]] [[Category:Pages with unformatted equations]]

[[Category:Economics and risk assessment]] [[Category:Pages with unformatted equations]]