A company has put its partner on notice for drilling a well on a prospect. The partner has evaluated the prospect. The company has identified two options for participation in the deal. The first is to participate in drilling with a 37.5% working interest in the well or farm out and retain a 5% overriding royalty interest. The evaluation has determined a number of possible outcomes from drilling. The following table provides a summary of the analysis. a. Use a payoff table to determine the expected values. b. Should the company participate in drilling or farm out? Base your answer on your payoff table. (6 marks) c. Determine the standard deviation for both scenarios. (4 marks) NPV Outcomes - Drill Farm out Reserves Probability 37.5% WI 5% ORI Dry hole 25% ($300,000) $0 3,500 m 30% $43,570 $87,330 5,800 m 25% $454,480 $146,460 8,000 m 15% $874, 110 $206,930 10,000 m 5% $1,258,630 $264,010 100% Gross well cost including lease equipment is $1,100,000. Gross dry hole cost is $800,000. A company has put its partner on notice for drilling a well on a prospect. The partner has evaluated the prospect. The company has identified two options for participation in the deal. The first is to participate in drilling with a 37.5% working interest in the well or farm out and retain a 5% overriding royalty interest. The evaluation has determined a number of possible outcomes from drilling. The following table provides a summary of the analysis. a. Use a payoff table to determine the expected values. b. Should the company participate in drilling or farm out? Base your answer on your payoff table. (6 marks) c. Determine the standard deviation for both scenarios. (4 marks) NPV Outcomes - Drill Farm out Reserves Probability 37.5% WI 5% ORI Dry hole 25% ($300,000) $0 3,500 m 30% $43,570 $87,330 5,800 m 25% $454,480 $146,460 8,000 m 15% $874, 110 $206,930 10,000 m 5% $1,258,630 $264,010 100% Gross well cost including lease equipment is $1,100,000. Gross dry hole cost is $800,000