An independent E&P firm signs a contract on $\frac{1}{2}\frac{?}{2006}$ for a petroleum lease$/$block in the deep offshore

water in the Gulf of Guinea. On signing the contract, the contractor pays $$100$ million in bonus. During

the first two years, the contractor conducts exploration activities at a cost of $$80$ million each year. A

commercial oil field was discovered with the first well completed on Dec $31,2008.$ But it will take

another two years to develop the field at a cost of $$120$ million in year one and $$100$ million in year

two. Assuming the instantaneous production at the beginning of the second year is $1,000$ BOPD and

production from the field peaks at a rate of $50,000Bb\frac{l}{?}$ day at the beginning of $2012$ declining

exponentially after two years at a rate of $15\%$ per year. Layout the appropriate production profile for

this field and the corresponding production forecast for the evaluation of this field.

It is estimated that the yearly field operating expenditure is $10\%$ of the total development cost plus a

fixed operating cost of $$300,000$ per year. The current oil price is $$45$ per barrel and it rises to a

maximum of $$70$ per barrel over the next ten years and then decline at two and a half percent

thereafter; the contractor must pay another $$5$ million when the cumulative production from the field

reaches $10$ million barrels and the contractor has to pay $16\mathrm{.}667\%$ royalty to the host government out

of the gross production only when cumulative production hits $10$ million barrels. Further, for petroleum

taxation purposes, $70$ percent of investments will be capitalized and depreciated by $5-$year SLD

schemes, the remaining $30$ percent is expensed. The field is expected to be sold to a smaller

independent firm in $20$ years after production began for about $10$ percent of the signature bonus value.

What is the estimated reserves remaining as at the time the field is sold.

Build an economic model to evaluate this venture by assuming a Federal Income Tax Rate of $39\mathrm{.}5$

percent. Be sure to specify in your report the important steps you took to successfully evaluate this

venture. How sensitive is the profitability of this venture to tax rate, instantaneous production rate, the

peak production rate and the current oil price?

Present a four$-$chapter report of the project under the following headings:

a$.$ Chapter $1$ Introduction: Statement of the Problem, Objective$($s$)$ of the Project, Methods used

and Organisation of the Report.

b$.$ Chapter $2$ Resources and Methods Used

c$.$ Chapter $3$ Results and Discussion

d$.$ Chapter $4$ Conclusions and Recommendations