American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.


Three case studies representing domestic petroleum investment situations currently of interest were examined for economic relationships. Multiple cash flow analyses were performed by a sophisticated computer program utilizing sensitivity analysis and user-directed algorithm modification via data input. Tax rules specified by the 1975 Tax Law were programmed and are included in this study. The results are presented as a series of figures demonstrating the dependence of profitability indicators on project variables. Cases investigated project variables. Cases investigated were: I, Domestic Onshore Dry Gas Development Case; II, Domestic Offshore (Federal Waters) Gas Prospect Bidding Case; and III, Domestic Onshore Oil Development Case.


Currently the most unsettled functional area of the petroleum industry is economics. The period commencing several years ago and continuing today is one of nonpareil change, worldwide and nationally, in the economic constraints under which the American capitalistic petroleum industry exists. The interrelated factors of rapid inflation, ascending but unstable petroleum prices, increasing governmental tax and prices, increasing governmental tax and acquisition tendencies, and more difficult and expensive drilling operations have combined to require frequently hard investment decisions from managers or owners. The decision maker, in turn, demands from his staff or consultant the most reliable economic analysis possible under time and budget limitations. Such an assignment normally dictates utilization of the computer tool to perform swiftly and cheaply period-by-period perform swiftly and cheaply period-by-period cash flow analysis.

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