The XYZ oil company owns several natural gas wells and is negotiating a 15-year contract to sell the gas from these wells to another company. They are negotiating on the price of the gas in the first year, in dollars per thousand cubic feet ($/MCF). including a 5% escalation clause. XYZ expects the wells to produce 50,000 MCF the first year and to decline at the rate of 15% every year thereafter. Operating costs are estimated to be $2.5/MCF and escalate at 4% per year. XYZ has agreed to spend $1.000.000 now to lay pipelines from each well to the second company's processing plant. What should the minimum price be the first year for this to be acceptable to XYZ? Assume an end-of-year convention and an MARR of 15%. 7.13 8.89

The XYZ oil company owns several natural gas wells and is negotiating a 15-year contract to sell the gas from these wells to another company. They are negotiating on the price of the gas in the first year, in dollars per thousand cubic feet ($/MCF). including a 5% escalation clause. XYZ expects the wells to produce 50,000 MCF the first year and to decline at the rate of 15% every year thereafter. Operating costs are estimated to be $2.5/MCF and escalate at 4% per year. XYZ has agreed to spend $1.000.000 now to lay pipelines from each well to the second company's processing plant. What should the minimum price be the first year for this to be acceptable to XYZ? Assume an end-of-year convention and an MARR of 15%. 7.13 8.89

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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