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Line 75: − − [[file:about-taxes_fig1.png|thumb|300px|{{figure number|1}}Federal income tax model for oil and gas transactions. Amounts are net to your working and revenue interest. Calculations are made each tax year.<ref name=pt02r16 />]] + +
→Calculating after-tax net cash flow
==Calculating after-tax net cash flow==
==Calculating after-tax net cash flow==
The recommended approach to calculate after-tax net cash flow (NCF) is to use Equation 1, which is
The recommended approach to calculate after-tax net cash flow (NCF) is to use Equation 1, which is
:<math> \mbox{After-tax NCF} = (\mbox{Net revenue interest} \times \mbox{Production} \times \mbox{Wellhead price}) - \mbox{Wellhead taxes} - \mbox{Operating costs} - \mbox{Federal income taxes} - \mbox{Investments}</math>
:<math> \mbox{After-tax NCF} = (\mbox{Net revenue interest} \times \mbox{Production} \times \mbox{Wellhead price}) - \mbox{Wellhead taxes} - \mbox{Operating costs} - \mbox{Federal income taxes} - \mbox{Investments}</math>
[[file:about-taxes_fig1.png|thumb|300px|{{figure number|1}}Federal income tax model for oil and gas transactions. Amounts are net to your working and revenue interest. Calculations are made each tax year.<ref name=pt02r16 />]]
All transactions in the equation are cash items, one of which is cash income taxes. The separation of the tax calculation from the NCF calculation is recommended because of the many complications in oil and gas taxation. Instead of combining the NCF calculation and the tax calculation, the federal income tax model for oil and gas transactions ([[:file:about-taxes_fig1.png|Figure 1]]) should be used to calculate the yearly taxes for the property, taking into consideration the appropriate tax treatment of each of the transactions. Once a cash tax liability (negative tax = tax savings) is calculated, this tax amount is subtracted, as shown in Equation 1.
All transactions in the equation are cash items, one of which is cash income taxes. The separation of the tax calculation from the NCF calculation is recommended because of the many complications in oil and gas taxation. Instead of combining the NCF calculation and the tax calculation, the federal income tax model for oil and gas transactions ([[:file:about-taxes_fig1.png|Figure 1]]) should be used to calculate the yearly taxes for the property, taking into consideration the appropriate tax treatment of each of the transactions. Once a cash tax liability (negative tax = tax savings) is calculated, this tax amount is subtracted, as shown in Equation 1.