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QUESTION 4 Wheeler Oil and Gas Limited has been operating in Ghana since 2017. The company has proved properties in which it owns a 100%
QUESTION 4 Wheeler Oil and Gas Limited has been operating in Ghana since 2017. The company has proved properties in which it owns a 100% working interest and has identified two wells that could be drilled. However, Wheeler Company does not have sufficient funds to drill both wells. The management of the Company is planning to drill one of the two wells. The information related to cach of the wells are as follows: Well-119 Wellos Drilling cost for the year. Ghc200,000 Ghc500,000 Completion cost for the year, Ghc560,000 Gho450,000 Selling price per barrel Ghc52 Ghe52 Lifting cost per barrel Ghc28 Ghe28 Petroleum tax 35% 359 Royalty interest 10% 10% Estimated production for the year, 12,000 24,000 Required: a) Calculate the payback period for the two wells. (12marks) b) Base on your calculations in (a) advise the management of Wheeler Oil Limited which well the Company should drill? (2marks) c) What are the advantages and disadvantages of the pay back method as invest- ment appraisal technique? (6marks) Total [20 marks] 4
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