How far in advance is it worth proving out reserves

Reference no: EM131224435

An oil company contemplates investing 100 million dollars per year (in constant dollars) for five years in exploratory work to confirm the existence of new exploitable reserves. It will then face a potential delay until market conditions justify exploitation, which will require investing 200 million dollars for three years in production facilities, following which delivery of oil can start with a projected net revenue of 100 million dollars per year, essentially ad infinitum.

a. At a real discount rate of 5%/yr what is the longest delay tolerable between the start of exploitation and the start of oil delivery: i.e., how far in advance is it worth proving out reserves?

b. If the real discount rate were 10%/yr, what is the maximum time delay?

Reference no: EM131224435

Questions Cloud

Price elasticity of demand using the midpoint formula : The price elasticity of demand using the midpoint formula is ____. (Enter your response as a real number rounded to two decimal places.)

Analyze why and support your analysis with a graph : Does a peace dividend or a reversal to more military spending represent a possible shift of the production possibilities curve (new curve) or a movement along it(going from one point to the other on the same curve)? Analyze why and support your an..

What statistic in social media revolution video did you find : What in your opinion is the most important lesson that any business should understand about social media? What statistic in "Social Media Revolution 2015 #Socialnomics" video did you find the most surprising and why?

Utility-maximization of a consumer with preferences : Consider the utility-maximization of a consumer with preferences U(Dc;Df) = (Dc)^a(Df)^1-a; with 1

How far in advance is it worth proving out reserves : At a real discount rate of 5%/yr what is the longest delay tolerable between the start of exploitation and the start of oil delivery: i.e., how far in advance is it worth proving out reserves?

Differences in the quality of those products : Compare a $100,000 median family income in 1980 to the same income in 1990, 2000, and 2010. What are the differences in the available products? What are the differences in the quality of those products? Considering this, in which of those years wo..

What can organizations do to ensure peer justice : What was the root cause of this condition? If you haven't experienced this, theoretically, what do you believe causes this condition? Finally, what can organizations do to ensure peer justice.

Identify the type of study proposed : Identify the type of study proposed. Indicate the specific strengths and weaknesses of the study. State the most likely source of bias in the study.

Research and displaying the consequences : This present paper's goal is to give you a presentation into directing an exact research and displaying the consequences of that exploration in a professionally composed paper.

User Account

All Pages