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→Calculations in the cash flow model
Some of the economic parameters presented later utilize ''after-tax net operating income'' (NOI) as a measure of profit. After-tax NOI is defined as follows:
Some of the economic parameters presented later utilize ''after-tax net operating income'' (NOI) as a measure of profit. After-tax NOI is defined as follows:
:<math>\mathbf{Equation}</math>
:<math>\text{After-tax NOI} = (\text{Net revenue interest}~\times~\text{Production}~\times~\text{Wellhead price})~-~\text{Wellhead taxes}~-~\text{Operating costs}~-~\text{Federal income taxes} \ </math>
After the revenue and expenditure schedule has been determined, we can now calculate cash income taxes for our project. Finally, once the cash income taxes have been calculated for each year, the cash flow time diagram can be prepared and we are ready to calculate the net present value for our venture. (For an example and explanation of a cash flow time diagram, see the previous chapter on "The Time Value of Money.")
After the revenue and expenditure schedule has been determined, we can now calculate cash income taxes for our project. Finally, once the cash income taxes have been calculated for each year, the cash flow time diagram can be prepared and we are ready to calculate the net present value for our venture. (For an example and explanation of a cash flow time diagram, see the previous chapter on [[The time value of money|The Time Value of Money]].)
For now, let's assume we are provided the cash income tax number, so we are ready to look at an example problem for a single development well. The assumptions for this example problem and a completed worksheet are presented in 1. A completed cash flow time diagram is shown in 2 along with the equivalent net present value calculation.
For now, let's assume we are provided the cash income tax number, so we are ready to look at an example problem for a single development well. The assumptions for this example problem and a completed worksheet are presented in 1. A completed cash flow time diagram is shown in 2 along with the equivalent net present value calculation.