Economic Analysis Methodology To start the economic analysis

Economic Analysis
To start the economic analysis, the production has been forecasted, the only step will be left before drilling and completing the new well is to determine the economic capability of the project. By using the production forecast previously generated along with estimated oil prices and comparing this to the expected costs incurred, so we can predict the expected return over the life of the well. In order to predict a gross revenue stream, we used 3 different prices of $75/bbl.; $65.; and $55.;. initial drilling and completion costs, monthly operating expenses, and tax rates were found from International Energy Agency Publication. Aside from the initial expense, all cost and revenues were calculated on monthly basis to accord with the monthly production. The net present value was also found at 7 year suing a 10% insignificant interest rate. The rate of return also found at 12 months of for each of drilling plans at each price. We calculate for net present value is the important measure when conducting economic analysis since it is measuring the profitability and earning of a project. We can calculate net cash flow by using minus the initial expenditure, while factoring in the time value of money by using a nominal interest rate as the discount rare. For this analysis, net present value was calculated at 7 year by using 10 %. NPV was calculated.
¥ Present Value Calculati

¥ Net Present Value Calculation

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The input parameters of the economic and the cash flow over normalized time. This was beneficial to see how project to recover the initial expense and reach a close breakeven point. In this case $55 /bl it would not reach. The median case at $65/bbl it may reach breakeven at 4 year for production. At the worst case with the with $55/bbl, the well would breakeven at the production on 5 year. In the best case $75 the well reach at 6 year.
In addition to cash flow rate of return was calculated for each case on excel sheet. The result from NPV analysis are sho in grph. The net present value for more 7 year would improve by range 2,000, 000 to 4,000,000 depending on the price environment.


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