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1-14 The reservoir pressure in the Smiley Field has declined to the point that Well...

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Accounting

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1-14 The reservoir pressure in the Smiley Field has declined to the point that Well 15-2 will no longer flow naturally. As a result, it has been decided that a downhole sucker rod pump, a set of rods, and a surface unit having a service life of six years will be purchased for $220,000. The pump will cause the well to produce the annual oil production shown in the following table. Your working interest is 100%. Your net revenue interest is 75%. Operating costs are estimated to be $40,000 the first year and will increase by $2,000 each of the following five years. The pump has no salvage value. Calculate your revenue using a constant oil price of $60.00/Bbl. a) Calculate yearly net cash flow BFIT for this investment. Draw the cash flow diagram

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