1. An operator is considering two options to improve the production from an oil well. Option 1 requires that the well be stimulated at a cost of $10,000 with an increase in production of 5 bbls/day for a one year period. Option 2requires the well be fractured at a cost of $50,000 with an increase in production of 15 bbls/day for a one-year period. Option 3is to continue to produce under present conditions. If the oil price is assumed to be $20/bbl, which option should be chosen? Based on prior experience, the operator knows that the incremental production after stimulation can be off by ±5% and the incremental production after fracturing can be off by ±10%. How will this analysis affect the decision in the previous paragraph?
2. An oil company is interested in drilling infill wells to accelerate production from a field. As more wells are drilled, the production will increase; however, the incremental production will become smaller and smaller a s more wells are drilled. Based on the analysis of a nearby field, the company derives the following equations: B= 400,000*I-10,000*I2 C= 100,000*I Where B is the total benefit (in dollars) received as a result of I infill wells drilled and C is the cost (in dollars) of drilling I wells. To optimize the profit, how many wells should be drilled? What is the maximum profit the company can receive?
3. After the initiation of a CO2 flood, which involved a substantial investment, due to a drop in oil prices, an oil company realized that it will lose money on any conceivable scenario. In selecting a possible scenario, what criterion should the company select?
4. An oil company is considering buying a compressor.Depending upon the horsepower, the cost of the compressor will vary. The four options the company is looking at are:
Option A B C D ----------------------------------------------------------------------------------------------------
Initial Cost $100,000 $180,000 $250,000 $300,000
Annual Benefit $40,000 $60,000 $75,000 $90,000
Annual Operating Costs $20,000 $30,000 $30,000 $40,000 -----------------------------------------------------
Assume that unused portion of the money can be invested at a rate of 15%. That is, if we assume that the company has $300,000 to invest, and if the company chooses Option A, then the remaining $200,000 can be invested at a rate of 15%. Which option should the company choose based on net annual benefit analysis?