OIL AND GAS ECONOMICS


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OIL AND GAS ECONOMICS 1 answer below » Economics of Oil, Gas and Energy Week 5: Hand-In Assignment Hand-in Assignment This week you will be
analysing a drilling decision using an interactive model. Open Interactive model, week 5.xlsm. There you will see a tree
similar to Figure 5.5. At the top you will see the familiar white cells for
changing inputs as well as the “Reset to Base Values” button. Further, near the
very top you will see two links, labelled “Tree” and “S-curve.” You can click
on these links to reveal either the tree or its corresponding S-curve. (Again,
you may have to zoom in or out to see clearly.) Click to the View complete question » Economics of Oil, Gas and Energy Week 5: Hand-In Assignment Hand-in Assignment This week you will be
analysing a drilling decision using an interactive model. Open Interactive model, week 5.xlsm. There you will see a tree
similar to Figure 5.5. At the top you will see the familiar white cells for
changing inputs as well as the “Reset to Base Values” button. Further, near the
very top you will see two links, labelled “Tree” and “S-curve.” You can click
on these links to reveal either the tree or its corresponding S-curve. (Again,
you may have to zoom in or out to see clearly.) Click to the tree. You will see expected value of $16 million you
saw in connection to Figure 5.5, as well as the probability of discovery of
20%. Note that this shows a “truncated” version of the full tree. Now click to the S-curve. There you will see the S-curve
associated with the tree. Below this you will see two measures of downside
risk: the Worst Case of -$100 million, and an 80% probability of destroying
shareholder value. Now click over to the Drill
Decision-detail tab. Scroll around and you will see the full tree. Click back to the Drill
Decision tab, and then click back to the tree and experiment with the
inputs. You see that you can change the probability distributions on Recoverable
Reserves and Future Oil Price. You can change the probability of discovery. You
can change the size of the drilling investment. Also, you can change the
initial production rate, which, you will remember from last week, changes the
character of the production curve. Finally, you can change other inputs, but
will not be required to do so for this week’s assignment. Try to find input
combinations that switch the No Drill branch to red. Here are the questions for you to answer: 1.
Reset to
base values and click to the tree. What probability of discovery would make the
driller indifferent between drilling and not drilling? 2.
Reset to
base values. What is the largest investment cost that the driller could
entertain and still decide to drill? 3.
Reset to
base values. Change the P10 value for Future Oil Price from $30/Bbl to $10/Bbl.
What is the new expected NPV? Note that you have not changed the “best guess”
value of oil price from $70/Bbl. Why does the expected NPV change? 4.
Reset to
base values. Change the initial production rate from 8,000 Bbl/day to 10,000
Bbl/day. What is the new expected NPV? Note that you have not changed the
recoverable reserves. Why is it higher? What does this tell you about the
significance of realising a high initial production rate? Now click over to the Value of Perfect Info tab. First,
notice that the input values are no longer white, but blue. This indicates to
you that if you wish to change these inputs, it must be done on the Drill Decision tab. Click to the tree
and you will see a new tree that looks like Figure 5.11. Again, this is a
truncated version of the full tree for ready viewing. The full version of the
tree is on the Value of Perfect
Info-detail tab. You can look at this tab and scroll around to get a sense
of the full tree. Go back to the Value
of Perfect Info tab. 5.
Click to
the tree. You can look at this tree and, not
looking at any of the numbers , immediately see that there is value to
obtaining perfect information on recoverable reserves. What indicates tha…

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