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After a long hiatus we are now returning to the series on oilfield economics. Discounted cash flow return on investment (DCFROI) also referred to as discounted cash flow rate-of-return (DCFROR) or Internal Rate of Return (IRR) is defined as the discount rate at which the NPV is zero. It is very attractive to decision makers […]

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Present Value (PV) is particularly useful in ranking comparably sized projects with similar investment requirements. Net Present Value (NPV) refers to the total of all cash flows to (and from) a given party.  It can be a pre-tax or after-tax number. The terms PV and NPV are often used interchangeably with some companies using NPV […]

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Price Escalation and Constant Price Cases Changing product prices for oil and gas are a fact that is now ingrained in the thought processes of evaluators. Price forecasting can be based on many approaches ranging from fundamental supply and demand predictions through trend analysis. No method has a stellar track record over a significant time […]

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Discounting Monthly Cash Flows One method of discounting monthly cash flows is to use the number of years (a non-integer) corresponding to those months and use the annual discount factor[1]. Another alternative is to use a monthly discount rate and to use the integer months for the calculation. In this latter example, there are two […]

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Discounting of future cash flows, time value of money It is commonly said that money has a time value. This is self-evident. Would you prefer to have $1,000 paid to you annually for the next thirty years or to receive $30,000 today?  While there may be certain circumstances where the delayed payments are preferable,[1] it […]

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NTIR or Number of Times Investment Returned is similar to the Profit-to-Investment ratio. The PI ratio is often called ROI; however, this is discouraged because of inevitable confusion with DCFROI.  It is a simple, undiscounted measure of the total net cash flows other than the “investment.” In the payout example the cumulative undiscounted cash flow […]

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