Year 1
- Gross oil
- 10,000 bbl
- Net revenue
- $560,000
- Net OPEX
- $175,000
- Net cash flow
- $385,000
- Present value at 10%
- $350,000
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Worked example · Three years
Assumed oil price: $70/bbl. Initial capital: $600,000. Synthetic inputs, with no taxes or terminal value.
- NPV at 10% annually
- $178,775
- Net cash after capital
- $325,400
- Working interest
- 100%
- Net revenue interest
- 80%
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Worked example · Oil well cash flow
Calculate a three-year well NPV, step by step
A production forecast becomes an economic case when you apply prices, ownership, costs and cash-flow timing. This hypothetical case produces a $178,775 NPV at a 10% annual discount rate.
1. Make the assumptions explicit
- Gross oil volumes
- 10,000 / 8,000 / 6,400 bbl in years 1 / 2 / 3
- Oil price
- $70/bbl, flat, assumed
- Working / net revenue interest
- 100% WI / 80% NRI
- Gross operating cost
- $15/bbl plus $25,000/year
- Initial capital at time zero
- $600,000 gross and net at 100% WI
- Timing and discount rate
- Year-end cash flows; 10% effective annual
2. Separate revenue interest from cost interest
For year 1, the revenue share uses NRI. Operating costs and capital use WI. Applying 80% to both revenue and costs would overstate this owner’s cash flow.
Revenue = 10,000 × $70 × 80% = $560,000
OPEX = (10,000 × $15 + $25,000) × 100% = $175,000
Year 1 cash flow = $560,000 − $175,000 = $385,000
All figures are USD. The volume assumptions are annual totals, separate from the DCA tutorial. No gas or NGL revenue, taxes, transport, G&A, later capital, abandonment cost, inflation or terminal value is included.
3. Discount each cash flow to time zero
Year 2
- Gross oil
- 8,000 bbl
- Net revenue
- $448,000
- Net OPEX
- $145,000
- Net cash flow
- $303,000
- Present value at 10%
- $250,413
Year 3
- Gross oil
- 6,400 bbl
- Net revenue
- $358,400
- Net OPEX
- $121,000
- Net cash flow
- $237,400
- Present value at 10%
- $178,362
NPV = −$600,000 + $385,000 / 1.10 + $303,000 / 1.10² + $237,400 / 1.10³
$178,775 over this three-year horizon
Undiscounted net cash after the initial capital is $325,400. With the stated year-end payment convention, cumulative cash turns positive at the end of year 2. Monthly payments would change the present value and payout timing. Calculations use unrounded values; displayed dollars are rounded.
4. Test the price assumption
Hold volumes, costs and ownership constant and change only the flat oil price. These prices are scenarios, not market quotes or forecasts.
| Assumed oil price | NPV |
|---|---|
| $50/bbl | -$149,399 |
| $70/bbl | $178,775 |
| $90/bbl | $506,950 |
What this result does and does not tell you
A positive NPV means the modeled cash flows exceed the initial investment after discounting at the chosen rate. It does not establish the well’s market value. Add the actual fiscal terms, decline uncertainty, future costs and production beyond year 3 before evaluating a real investment.
Method reference: NIST’s guide to discounting, NPV and payback. The oil-well inputs and calculations here are Petrolytx’s illustrative example.
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Frequently Asked Questions
What economic metrics do you calculate?
NPV (at any discount rate), IRR, payout period, and monthly cash flow projections. Built-in sensitivity analysis on prices, costs, and decline parameters.
Can I model different fiscal regimes?
Configure working interest, net revenue interest, oil and gas severance taxes, and ad valorem taxes for a scenario. Verify the terms against the well's actual ownership and fiscal requirements before using the results.
How do I compare scenarios and wells?
Create multiple scenarios with different price, cost, or production assumptions and compare side-by-side. Rank wells by NPV, IRR, or other metrics to optimize capital allocation.
What export formats are supported?
Download saved scenario summaries as CSV, or export a PDF report for the selected saved scenario. Review the saved inputs and results before sharing an evaluation.
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