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Line 46: − + + + − − [[File:Rose time-value-of-money 1.jpg|thumbnail|left|'''Table 2.''' Comparison of project cash flows and equivalent present value fir example development well (in $ thousands)]] − − [[File:Test.png|thumbnail|right|'''Tabe 3.''' Cash flow model for example 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]]
→Calculations in the cash flow model
==Calculations in the cash flow model==
==Calculations in the cash flow model==
[[File:Charles-l-vavra-john-g-kaldi-robert-m-sneider capillary-pressure 1.jpg|thumbnail|'''Table 1.''' Cash flow model for a development well]]
[[File:Rose time-value-of-money 1.jpg|thumbnail|left|'''Table 2.''' Comparison of project cash flows and equivalent present value fir example development well (in $ thousands)]]
The ''net cash flow'' (NCF) for each assumed time period, including time 0, can be determined using the following equation.
The ''net cash flow'' (NCF) for each assumed time period, including time 0, can be determined using the following equation.
:<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>
:<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>
[[File:Charles-l-vavra-john-g-kaldi-robert-m-sneider capillary-pressure 1.jpg|thumbnail|'''Table 1.''' Cash flow model for a development well]]
[[File:Test.png|thumbnail|right|'''Tabe 3.''' Cash flow model for example 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]]
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]].)
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 [[:Image:http://wiki.aapg.org/File:Charles-l-vavra-john-g-kaldi-robert-m-sneider_capillary-pressure_1.jpg|Table 1]]. A completed cash flow time diagram is shown in [[:Image:Rose_time-value-of-money_1.jpg|Table 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 [[:Image:http://wiki.aapg.org/File:Charles-l-vavra-john-g-kaldi-robert-m-sneider_capillary-pressure_1.jpg|Table 1]]. A completed cash flow time diagram is shown in [[:Image:Rose_time-value-of-money_1.jpg|Table 2]] along with the equivalent net present value calculation.
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.
==Points to remember==
==Points to remember==