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RESERVE ECONOMIC ANALYSIS Developed by First City National Bank of Houston - Engineering Department The following is a list of possible entries the user will need to make a typical REAL (Reserve Economic AnaLysis) run. These are the entries that the user should consider initially; however, not all of the items may be needed. The data input form provides a good check list to insure that the necessary information has been covered for each evaluation and is repeated here in greater detail. 1. Well identification a. Well (and/or lease) name and number b. Field (and reservoir) designation c. State d. County e. Operator 2. General Information a. Present worth month, year and discount rate b. As of date 3. Production Information a. Production start date b. Phase(s) of production to be scheduled and the major phase c. Cumulative production d. Production schedule 4. Product Prices and Operating Cost a. Escalation parameters 5. Tax Information a. Production and severance tax b. Ad Valorem tax c. Windfall profit tax - Tier category - Base price - GNP deflator - Tax rates 6. Ownership Information a. Working interest before and after reversion b. Net revenue interest before and after reversion 7. Investment Information a. Time point of investment b. Tangible or intangible investment 8. Other Consideration Many entries are needed to sort, to retrieve or to consolidate the cases involved in a project; they are called masked items. Even though these items will not alter the numerical output and could be ignored if the user so desired, it is good practice to fill out these entries at the time data is input so that future reference to any evaluation can be more accurate. These masked items are file number, name of the engineer(s) who did the evaluation, the reserve category and all entires listed under well identification. The following is further explanation of the data input on an item per item basis. A maximum of 77 pieces of data can be input into REAL. This data is listed under general categories , such as; descriptive input, production and economic data, masked items and miscellaneous data and can be explained according to their numerical order listed in the sample of the input screen. DESCRIPTIVE INPUT All items under descriptive input are self-explanatory. They include the following: ITEM CELL DESCRIPTION 1 B3 Name of the company that owns the appraised interest 2 B4 Well (and/or lease) name and number 3 B5 Name of the field in which the well is located. The reservoir name can also be included in bracket if needed 4 B6 Name of county (or parish) on which the well is located 5 B7 Name of state (or province) on which the well is located 6 B8 Name of the company that operates the well GENERAL RESTRICTIONS For these descriptive items, the maximum number of characters that will allow the input to be fully displayed on the screen is 36 characters. However, the output format will support a string of up to 54 characters (part of which will be hidden on the input screen). MISCELLANEOUS DATA ITEM CELL DESCRIPTION 7 G3 Month to which the Present Worth is discounted. Should be input as a value and could have one or two digits for the month (plus a decimal point and a fraction of the month if it is necessary to discount the PW to some point other then first of the month). Example: Input 10 for October 1st Input 8.5 for August 15th 8 G4 Year to which the Present Worth is discounted. This is also the first year that the output will calculate and display. Should be input as a four digit value. 9 G5 File number is one of the masked items needed for future operations, such as, saving a file or retrieving a file. 10 G6 Name of the engineer(s) who did the evalua- tion. 11 G7 Reserves category could be input as abbrevia- tions such as PDP for Proved Developed Producing, PDNP for Proved Developed Non- producing, etc. 12 G8 As of date is the date only beyond which the production is considered. In most cases this is the same as PW date (items 7&8). This date should be input as a label or as a date, the as of date values are items 19 and 20. PRODUCTION AND ECONOMIC DATA 13 A9 Initial working interest should be input in percent. 14 B9 Initial net revenue interest should also be input in percent. 15 C9 If the operating cost is a function of the number of wells, it should be input as $/well/month. This cost is additive to the other operating cost (item 16). 16 D9 Operating cost in $/month or as certain percent of the gross revenue regardless of number of wells. Use the negative sign to indicate this cost as a percent of gross revenue. Example: Input 2000 if the operating cost is 2000/month, input -8.5 if the operating cost is 8.5 percent of the revenue before taxes. This cost is additive to the operating cost (item 15). ITEM CELL DESCRIPTION 17 E9 Ad Valorem tax is input as a percent of the revenue before taxes. 18 F9 Major phase indicator is used to show if the main phase of production is oil or gas. If oil is the major phase, input 1 If gas is the major phase, input 2 19 G9 First month of production. The restric- tion on this item is the same as the PW month (item 7). 20 H9 First year of production. The restriction is the same as on PW year (item 8). The next 19 items contain three sets of value for the oil (7), the gas (7) and the third phase (5) as follows: 21,28,35 B10-B12 Cumulative production in thousand units (i.e. MBO, MMCF, etc...) 22,29,36 C10-C12 Initial product prices per unit of pro- duction (i.e. $/bbl, $/mcf, etc...) 23,30,37 D10-D12 Production and severance tax in percent or dollars per unit of production. Use the negative sign if the entry is in dollars per unit of production. Example: For the state of Louisiana, P&S tax is 12.5% for the oil and 7 cents per mcf for the gas, the input will be: 12.5 for item 23 -0.07 for item 30 24,31,38 E10-E12 Initial production in unit of production per month (i.e. BOPM, MCFPM, GAL/mo., etc.. 25,32,39 F10-F12 Final production in units of production per month. If the entry is zero or left blank, the default value for this input is the actual economic limit (actual as opposed to a calculated economic limit that will be dis- cussed later in items 40 and 91). ITEM CELL DESCRIPTION 26,33 G10,G11 Product classifications are input according to the table below: Classification Oil Tier Gas Type 1 1 N/A 2 2 102 3 3 103 4 N/A 104 5 N/A N/A 6 N/A 106 7 N/A 107 8 N/A 108 9 Other Other 27,34 H10,H11 Gross number of wells for gas and oil. The number is used to calculate the operating cost using item number 15. 40 B13 There are three methods of declining major phase production. A code number (from 0 to 2) is put in B13 to use that type of decline. For subordinate phase decline see items 64 - 67. 0 When exponential decline is to be used and the decline rate is calculated by the program. In order to do so, the user has to input the remaining re- serves in thousands (item 41). The program then estimates the economic limit (calculated EL opposed to actual EL mentioned in items F10-F12.) 1 When exponential decline is to be used 2 When a simulated hyperbolic decline is to be used. This method used many con- tinuous portions of exponential decline of reducing declining rates and is much easier to use then hyperbolic decline. 2 Can also be used for any unconventional declining scheme, such as, one typical of a waterflood response where produc- tion increases, then levels out and finally starts to decline in a more conventional way. 41-46 C13-H13 Decline rates are input in percent. If the declining code (item 40) is 0, item 41 would be the gross reserves. If the declining code is 1, one entry to item 41 will be required. If the declining code is 2, up to six continuous portions of yearly exponential decline can be input. The decline rate for following years will be the same as the decline rate in the last (latest) entry, unless manually input. (For more informa- tion refer to manual inputting in Operating Section). Example: To calculate the exponential decline with known reserves of 40,000 Bbls (item 41) and initial rate (item 24): Item 40 41 42 43 44 45 46 Entry 0 40 For a well that will decline exponentially at an annual rate of 25%: Item 40 41 42 43 44 45 46 Entry 1 25 For a well that will decline 70% in the first year, 60% in the second year, 50% in the third year, 40% in the fourth year, 30% in the fifth year and 20% thereafter. (A number must be put in all related cell locations.): Item 40 41 42 43 44 45 46 Entry 2 70 60 50 40 30 20 47 to C14 to Amount of gross investment in thousands of dollars, six locations are available for the first six years of well life. If it becomes necessary to input additional investments after the initial six years of well life, these investments will have to be input manually. All costs are expressed in today's dollar. Example: Input the following gross investment schedule YEAR AMOUNT($M) 1 100 2 0 3 100 4 0 After 0 B C D E F G Item 47 48 49 50 51 52 Entry 100 0 100 0 0 0 54-59 B16,B17 After payout (APO) working interest in percent. 55-60 C16,C17 After payout, net revenue interest in percent. 56-6l D16,D17 Payout amount in thousand dollars or thou- sand units of production of the major phase. 57-62 E16,E17 Gross/Net payout indicator If payout is in gross amount, enter 1 If payout is in net amount, enter 2 58-63 F16,F17 Dollar/Unit of production indicator If payout is in $M, enter 1 If payout is in thousand unit of major phase, enter 2. Example for two payout reversions: For a well that will reverse to 50% WI and 40% NRI after PO of 250 $M gross and will reverse to 40% WI and 32% NRI after PO of 520 MB net, the input looks like this: Item 54 55 56 57 58 Entry 50 40 250 1 1 Item 59 60 61 62 63 Entry 40 32 250 2 2 64-67 B18-C18 Optional ratios to major phase. Two initial ratios (items 64 and 66) and two final ratios (items 65 and 67) are included and should be input in unit/unit. These entries are particularly useful when the production ratios between the subordinate phases and the major phase are changing. The changing will be calculated logarithmically, meaning that if plotted on semilog paper, the ratio will decline (or incline) on a straight line. If the subordinate phase declines at the same rate as the major phase, put a 1 (one) in location B18 and C18. The ratio is major phase to subordinate phase production. Example: The condensate yield ratio of the appraised gas well is changing from 100 B/MMCF to 50 B/MMCF, and the plant liquid yield ratio of the same well remains constant at 2 gal/MCF, the input will be: Item 64 65 Entry .100 .050 Item 66 67 Entry 2 ITEM CELL DESCRIPTION 68 B20 Adjustment factor is input as a value from 0 to 1 to reflect the risk associated with the reserves category of the appraised well. A reasonable adjustment factor would be: 1.00 for established proved producing wells 0.80 for established proved shut-in wells 0.60 for newly completed shut-in wells or behind pipe reserves OTHER INPUT 70 J13 Base price, in $/B, of tier 1 oil for Wind- fall Profit Tax consideration. 71 J19 Base price, in $/B, of tier 2 oil for Wind- fall Profit Tax consideration. 72 J15 Base price, in $/B, of tier 3 oil for Wind- fall Profit Tax consideration. 73 J2 Discount factor in percent. 74 J3 Inflation rate in percent, this inflation rate is used to calculate future value of an expenditure, of which the estimated cost is in today's dollar. 75-77 J6-J8 Ceiling prices of oil, gas and the third phase, respectively, in $/unit of production. Note: (1) If production and severance tax is to be in $/unit of production, a negative sign is required. OPERATING THE PROGRAM After the data has been input, the user has several options of which he can use one or more. These options are: 1. Revise the input. In this case, he needs to type the "home" key to move the cursor to location A1 and begin his revision from there. 2. The user thinks that the output is "correct", and he wants to make a hard copy of this output. Normally, he would have to set up a complex string of print commands to accomplish this. However, with the user defined functions (marcos in Lotus 123), he only needs to perform a few simple key strokes. These strokes, which are set up in a menu-driven fashion, will be discussed in the next chapter. 3. The user may also want to save his output onto the disk for future reference. Again, the user defined feature can be used to simplify the saving procedure. 4. To start a new case. In this case, the user wants to return to location A1 (by typing the "home" key) and begin to input another set of data to the screen. 5. Input part of the output (such as production and pricing schedule, number of the well...) manually. This action overrides the formulas and labels of the program. As a result, after manual inputting is used the user has to retrieve REAL again if he wants to use any of the erased formulas or labels. Some of the manual inputting changes you can make by year are as follows: 1. Working interest 2. Net revenue interest 3. Decline schedule 4. Schedule of production 5. Operating expenses 6. Investments OPERATING MENU The menu written for REAL can be shown as follows: (1) (2) [Alt A] [Alt B] PRINT SAVE FILE REPLACE FILE RUN MANUAL 1. "Alt A" gives the option to print the file, save the input and output portion of REAL, or to retrieve an already saved file so you can work with it again. 2. "Alt B" calculates the program, or use F9. The manual moves you to the section for manual input of production. rog