Changes

If the development well modeled in Table 1 in [[Building a cash flow model]] had been assigned an 80% chance of success by the geologist, the calculated ENPV (aftertax) at 4% would be [[cost::713,480 USD]] (0.80 × [[cost::1,015,600 USD]] – 0.20 × [[cost::495,000 USD]]). Since this is a linear function, a plot of ENPV versus the probability of success results in a straight line. Assume two points (''P''_s = 1 and 0) to define the line. The intersection where the ENPV is zero will give the breakover point for the probability of success. [[:file:key-economic-parameters_fig3.png|Figure 3]] demonstrates this concept. The breakover probability of success for the development well is approximately 33%.

If the development well modeled in Table 1 in [[Building a cash flow model]] had been assigned an 80% chance of success by the geologist, the calculated ENPV (aftertax) at 4% would be [[cost::713,480 USD]] (0.80 × [[cost::1,015,600 USD]] – 0.20 × [[cost::495,000 USD]]). Since this is a linear function, a plot of ENPV versus the probability of success results in a straight line. Assume two points (''P''_s = 1 and 0) to define the line. The intersection where the ENPV is zero will give the breakover point for the probability of success. [[:file:key-economic-parameters_fig3.png|Figure 3]] demonstrates this concept. The breakover probability of success for the development well is approximately 33%.

If the extension project had been assigned a 70% chance of success by the geologist, the calculated ENPV (after-tax) at 4% would be [[cost::1,613,832 USD]] (0.70 × [[cost::2,729,760 USD]] – 0.30 × [[cost::990,000 USD]]). The breakover probability of success for the extension project is approximately 27% (see Figure 3).

If the extension project had been assigned a 70% chance of success by the geologist, the calculated ENPV (after-tax) at 4% would be [[cost::1,613,832 USD]] (0.70 × [[cost::2,729,760 USD]] – 0.30 × [[cost::990,000 USD]]). The breakover probability of success for the extension project is approximately 27% (see [[:file:key-economic-parameters_fig3.png|Figure 3]]).

The expected net present value is useful in comparing large or complex ventures, as well as projects having different discovery probabilities and reserves potential. The parameter is useful in prospect inventories and for program planning and budgeting if estimates of reserves and discovery probability are reliable. The expected net present value to expected investment ratio is also useful in capital investment decisions when capital is limited. Newendorp<ref name=pt02r13 />) demonstrates the use of this investment efficiency ratio.

The expected net present value is useful in comparing large or complex ventures, as well as projects having different discovery probabilities and reserves potential. The parameter is useful in prospect inventories and for program planning and budgeting if estimates of reserves and discovery probability are reliable. The expected net present value to expected investment ratio is also useful in capital investment decisions when capital is limited. Newendorp<ref name=pt02r13 />) demonstrates the use of this investment efficiency ratio.