Washington Exploration Corp. is evaluating whether to acquire an existing produc
ID: 1246990 • Letter: W
Question
Washington Exploration Corp. is evaluating whether to acquire an existing producing field from Adams Energy Corp. The purchase price of the field is $8,000,000 and would be paid immediately (Time 0). The company's engineers estimate that the field, without any additional investments beyond the initial purchase price, will provide net cash inflows of $3,600,000, $2,880,000, $2,304,000, $1,843,400, and $1,474,560 in 2012 to 2016, respectively. Washington evaluates its projects using an 18% hurdle rate. Answer the following questions on page 6 of the answer sheets. Using DISCOUNTED cash flows, in which year, if any, does payback occur? What is the net present value of this project? Should Washington acquire this property? The production from each of three wells on Lease A and two wells on Lease B is estimated on the basis of 24- hour tests, shown in the tables below. The production from the wells on each lease is comingled and then measured; then the production from the two leases is comingled in a central tank battery. During the month, Lease A's production is measured at 5,105 barrels and Lease B's production is measured at 3,480 barrels, for a total of 8,585 barrels. After treatment at the central tank battery, 8,800 barrels are sold. Calculate the amount of oil sold to be allocated to each lease and well. Enter your answers on page 6 of the answer sheets. See the answer sheet for a table of information relating to a wellhead gas balancing situation. Non-operator #3 elects to not sell gas in the "subsequent month" and the other two owners will proportionately take #3's share of the gas. Determine the correct values to enter into the shaded cells on the table.Explanation / Answer
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