Question #1: An example oil well Consider an oil well that takes one year to develop (acquire the land, drill, complete, and bring online) at a cost of $5,000,000 in capital expense. Once drilled, the oil from the well will generate 50,000 barrels of oil in the first year and each year thereafter revenues will decline 6% (assume drilling takes one year and oil starts producing in year two). Operating the well costs $500,000 per year in operating expenses and does not decrease over time. Assume a constant oil price of $75 / barrel and that once the well is no longer profitable it will cost $100,000 to P&A the well (i.e., to plug & abandon the well and fully restore the surface property). A. What is the total operating profit generated by the well over its life (do not discount to present value, just total the cash flow)? B. In what year would it make sense to plug \& abandon the well if there are no royalties, taxes, or other costs assessed beyond operating expenses? C. What is the Net Present Value (NPV) of the well to the owner at a 10% discount rate? Question #1: An example oil well Consider an oil well that takes one year to develop (acquire the land, drill, complete, and bring online) at a cost of $5,000,000 in capital expense. Once drilled, the oil from the well will generate 50,000 barrels of oil in the first year and each year thereafter revenues will decline 6% (assume drilling takes one year and oil starts producing in year two). Operating the well costs $500,000 per year in operating expenses and does not decrease over time. Assume a constant oil price of $75 / barrel and that once the well is no longer profitable it will cost $100,000 to P&A the well (i.e., to plug & abandon the well and fully restore the surface property). A. What is the total operating profit generated by the well over its life (do not discount to present value, just total the cash flow)? B. In what year would it make sense to plug \& abandon the well if there are no royalties, taxes, or other costs assessed beyond operating expenses? C. What is the Net Present Value (NPV) of the well to the owner at a 10% discount rate