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2. The following data relates to an oil and gas lease. Costs and production are in thousands. Production is in barrels of oil equivalent (BOE).
2. The following data relates to an oil and gas lease. Costs and production are in thousands. Production is in barrels of oil equivalent (BOE). Year 0 1 2 3 4 5 Production (BOE) 175 100 75 55 35 Intangible Drilling $7,500 $2,500 Tangible Equipment $6,700 Lease Bonus $1,000 Selling price ($/BOE) $80 $80 $80 $80 $80 Operating costs $1,750 $1,000 $750 $500 $250 Royalties 12.5% 12.5% 12.5% 12.5% 12.5% a) Calculate the annual before-tax cash flows for years 0-5. b) Determine the projects ROR, NPV, and PVR for a minimum rate of return of 15%. c) Determine the break-even product selling price in years 1 through 5 that would provide the investor with a 15% ROR. 2. The following data relates to an oil and gas lease. Costs and production are in thousands. Production is in barrels of oil equivalent (BOE). Year 0 1 2 3 4 5 Production (BOE) 175 100 75 55 35 Intangible Drilling $7,500 $2,500 Tangible Equipment $6,700 Lease Bonus $1,000 Selling price ($/BOE) $80 $80 $80 $80 $80 Operating costs $1,750 $1,000 $750 $500 $250 Royalties 12.5% 12.5% 12.5% 12.5% 12.5% a) Calculate the annual before-tax cash flows for years 0-5. b) Determine the projects ROR, NPV, and PVR for a minimum rate of return of 15%. c) Determine the break-even product selling price in years 1 through 5 that would provide the investor with a 15% ROR
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