Coupling Financial Profit Indicators to a Net Cash Flow Model for Production Sharing Contracts

With the increased emphasis on shareholder earnings and financial "profit," project evaluators are facing more questions about the impact of projects on financial net income. This paper demonstrates a method of coupling traditional project net cash flow analysis to incremental project pro forma financial statements for a production sharing contract. The coupling of a project net cash flow model with pro forma financial profit indicators provides an additional measure of profitability and information that may enhance project selection. In production sharing contracts, the cost recovery feature may enhance incremental project financial net income in early project years when intangible expenditures are significant.

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