15.01.2015 Views

Information Only - Waste Isolation Pilot Plant - U.S. Department of ...

Information Only - Waste Isolation Pilot Plant - U.S. Department of ...

Information Only - Waste Isolation Pilot Plant - U.S. Department of ...

SHOW MORE
SHOW LESS

Create successful ePaper yourself

Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.

Key assumptions and features associated with the oil and gas cash flows used in<br />

the simulation include:<br />

All calculations are performed from I January 1995. That is, oil and gas<br />

extraction activities in the three zones <strong>of</strong> interest are treated as a capital project<br />

that was evaluated (and undertaken) on 1 Januarv 1995. Reasons for this starting<br />

date are found elsewhere in this report.<br />

Drilling capital expenditures are recovered using a seven year Accelerated Cost<br />

Recovery System depreciation method (Stermo!e and Stermole, 1993).<br />

Revenues are treated as if realized monthly, and taxes and royalties are treated as<br />

if they are paid on a quarterly basis.<br />

<strong>Information</strong> <strong>Only</strong><br />

XII-4<br />

Simulations were run for each year from 1995 to 2030. Each simulation run,<br />

represented as an individual data set in the attached appendix, consisted <strong>of</strong> 48<br />

simulated oil price "paths" from 1995 to 2030. The Monte Carlo simulations<br />

generated numbers for each year for the present value <strong>of</strong> the market value <strong>of</strong> the<br />

reserves (PV Rev) and the present value <strong>of</strong> the total cash flow for each simulation<br />

run (PV CFlow). As is standard practice in financial analysis (for example see<br />

Levy and Samat, 1994), cash flows attributable to the decision to drill for oil or<br />

gas are the sum <strong>of</strong> income after taxes, depreciation, and depletion. Summary data<br />

are also presented for the present value <strong>of</strong> severance-tax flows (PV SevTax), state<br />

corporate tax flows (PV StateTax), federal corporate tax flows (PV Corp Tax),<br />

and royalty-payment flows (PV Royal).<br />

All present values and NPVs are expected values, and are averages <strong>of</strong> many<br />

simulation runs. Standard deviations (STD), maximum values (MAX), minimum<br />

values (MIN), and median values are also provided in the attachments for each<br />

individual simulation.<br />

Specifics regarding simulation input variables are provided below.<br />

Market prices<br />

Prices for oil (per barrel) and gas (per thousand cubic feet) were generated using a<br />

random walk method known as a Wiener process. Historical Eddy County oil and gas<br />

prices were analyzed

Hooray! Your file is uploaded and ready to be published.

Saved successfully!

Ooh no, something went wrong!