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

Abstract

This paper analyzes the most important aspects for economic evaluation of acceleration projects, such as rate of return, net present worth, and future worth modification for incremental ROR analysis.

It is shown that reinvestment of incomes is not necessarily implied by the rate of return calculation as claimed by most publications of the petroleum engineering literature. An petroleum engineering literature. An investor is interested in the rate of return for the specific project where he is going to invest, no matter how his incomes are reinvested. The rate of return gives the return that an investor receives on the unamortized investment at the end of each year.

If the incremental acceleration project yields dual rates of return, it project yields dual rates of return, it is better to resort to net present worth analysis. However, a modified incremental rate of return, can still be used in these cases as an evaluation tool. Examples are presented using data of previously published papers in the petroleum engineering literature. petroleum engineering literature

Introduction

Acceleration projects are of common occurrence in the oil industry. Examples are (1) conversion of wells from beam to hydraulic or electrical submergible pumping, and (2) infill drilling.

Investments in acceleration projects are usually of the mutually projects are usually of the mutually exclusive type, which means that out of two alternatives only one can be selected. If for example, a well is declining at a rate of 12%/year, one may consider the possibility of installing subsurface equipment with larger extraction capacity, to increase production, say by twice although the declining rate will also increase. Here, we can choose only one production alternative, which means that we are dealing with a mutually exclusive type of investment.

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