1) What woud be the net present value and internal rate of returns using a spreadsheet to develop a table that shows all items needed? Assume the base oil price ($25 for Cheap Oil or $50 for Tight Oil) and monthly operating expenses (from Table 2) first apply in 2007 (i.e., 2007 is year 1). What is the net present value for all six of the different base cases (two, four, and seven wells)?

Table 2 Possible Dry Hole and Production Scenarios

Probability Number of Producing Up Front CostRecoverableOriginal Monthly

(percent) WellsReserves (barrels)Operating Cost

Dry Hole400 $43,000 0 0

Poor252 $148,000 25000 $1,100

Moderate204 $328,000 60000 $1,700

Excellent157 $472,000 120000 $2,500

2) How can you model the problem using a decision tree by using the NPV data from number 1, data from Table 2, and assume 20% probability for Tight Oil and 80% probability for Cheap Oil.