Evaluate the discovery – you need to calculate the total worth, worth to the company, government take, value in terms of entitlement interest and working interest.Field Size 1.4 TcfProduction/Reserve Ratio 7% of the original field size starting producing year 3Gas Price $3.5/McfCapEx$1/Mcf capitalized in 5 years, straight-line depreciationOperating Cost $0.8/McfRoyalty 10%Government Take 40%Cost recovery limit 60% of gross revenueDiscount Rate 10%Income Tax Rate 33%

Royalty is typically a percentage of the revenue generated from the use of the property or resource,…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Evaluate the discovery – you need to calculate the total worth, worth to the company, government take, value in terms of entitlement interest and working interest.

Field Size	1.4 Tcf
Production/Reserve Ratio	7% of the original field size starting producing year 3
Gas Price	$3.5/Mcf
CapEx	$1/Mcf capitalized in 5 years, straight-line depreciation
Operating Cost	$0.8/Mcf
Royalty	10%
Government Take	40%
Cost recovery limit	60% of gross revenue
Discount Rate	10%
Income Tax Rate	33%