The Jones Family , Incorporated - Wildcat Well NPV Analysis

INPUT PARAMETERS
DYNAMIC CHART
NPV with End-of-Year Discounting
Risk free rate 6.0% 60 (Using same discount rate for Revenues and Costs)
INPUT "Dynamic Chart"
Market risk PARAMETERS shows real-time
7.0% 70
premium reaction of NPV
Instructions:
to
Beta 0.80 80
To raise and changes in any
INPUT PARAMETER
lower the
Barrels/day 300 30 10,000,000 (except, of course,
INPUT those affecting
Probability of PARAMETER 8,000,000
discount rate since
30% 30 discount rate is the X-

$ of NPV
dry hole values,
axis)
CLICK the 6,000,000
Inflation/yr 2.5% up and 25 down For example, to see
arrows the influence of
4,000,000
Decline in increasing the
5.0% 5
production/yr probability of a dry
* DO NOT * 2,000,000 hole, click repeatedly
Long-term
7.0% "type"70values on the UP arrow for
borrowing rate "Probabiltiy of dry
into INPUT 0
hole" and watch what
PARAMETER 0 5 10 15 20 25 30 35 40 45 50
Investment $ 5,000,000 50 happens to the
cells (2,000,000) Dynamic Chart.

Price/barrel $ 25.00 250

(4,000,000)
Discount rate for all cash flows
Shipping
$ 10.00 100
cost/barrel

CALCULATON OF NPV

CLICK on arrows to change

PV of REVENUES $17,174,017 discounted at Cost of Capital 11.6%
discount rates between
1
Cost of Capital (average risk)
minus and
PV of FIXED $6,869,607 discounted at Cost of Capital 11.6% 1 rate (lower risk)
LT borrowing
COSTS
=
PV of net annual $10,304,410
cash flows
X
70% Use INPUT PANEL to change
probability of oil
=
weighted average
$7,213,087
PV of net annual
cash flows
minus
$5,000,000 Use INPUT PANEL to change
Investment

=
NPV of $2,213,087 With END-of-year discounting convention
Widlcat Well

=
NPV of $2,619,970 With MID-year discounting convention
Widlcat Well

CALCULATON OF CASH FLOW

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Cost of capital 11.6%

Use INPUT PANEL to change
Barrels/day
Barrels/year 109,500 104,025 98,824 93,883 89,188 84,729 80,493 76,468 72,645 69,012 65,562 62,284 59,169 56,211 53,400
X 365

Price/barrel $ 25.00 25.63 26.27 26.92 27.60 28.29 28.99 29.72 30.46 31.22 32.00 32.80 33.62 34.46 35.32 36.21

REVENUE 2,805,938 2,732,282 2,660,559 2,590,720 2,522,713 2,456,492 2,392,009 2,329,219 2,268,077 2,208,540 2,150,566 2,094,113 2,039,143 1,985,615 1,933,493

Shipping
$ 10.00 10.25 10.51 10.77 11.04 11.31 11.60 11.89 12.18 12.49 12.80 13.12 13.45 13.79 14.13 14.48
cost/barrel

FIXED COSTS 1,122,375 1,092,913 1,064,224 1,036,288 1,009,085 982,597 956,804 931,688 907,231 883,416 860,226 837,645 815,657 794,246 773,397

CASH FLOW/YEAR (check figure) 1,683,563 1,639,369 1,596,336 1,554,432 1,513,628 1,473,895 1,435,205 1,397,531 1,360,846 1,325,124 1,290,339 1,256,468 1,223,486 1,191,369 1,160,096