1) An International Oil Company signs a contract with the Government of a country in Asia to operate one of their Oilfields. The costs, taxes and production estimates are given below.

100-million-barrel field Total cost $260 million Estimated operating cost $185 million Crude price $110/bbl Royalty 12.5%, tax rate 40%.

1. Calculate the Government (host country) and the Contractor (International Oil Company) shares.

2. Calculate the Government and the Contractor takes.

2) An independent oil company acquired mineral rights for $800,000 in 2015. The company drilled and completed a well on the lease for a total of $5,000,000 from which $2,000,000 was depreciable completion costs. The drilling cost of $3,000,000 is expensed for tax purposes and deducted against income in 2016. Initial well tests show an estimated daily production of 900 barrels per day, declining at a rate of 50 barrels per day in each succeeding year. Lease operating costs are projected at $520,000 per year, escalating by $40,000 per year in each succeeding year. The crude oil will be sold at $70 per barrel. Recoverable oil reserves are estimated to be 2,500,000 barrels. Assume that the company has 100% WI and 87.5% NRI in the lease, salvage value is zero, the income tax rate is 35%, and there is no production tax. Use double declining balance depreciation using 5-year asset life where applicable. Calculate the net after-tax cash flow for the 1st four years. Note that the maximum depletable limit is 50% of the taxable income before depletion. (Provide the final table of your solution here).