Last version published: 08/01/2024 08:51
Publication number: ELQ-76686-2
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Economic Model for Oil and Gas Wells
20 year projection model that makes it easy to plan the economics of deploying up to 46 oil and/or gas well cohorts.
Oil and gas extraction requires large equity investments and is a cash flow intensive business that rarely can secure bank financing. For that reason, the main focus of this model is to drive down to monthly cash flow based on all activity. A DCF Analysis, IRR, and equity multiple are then calculated based on the configurations defined by the user.
There is a built-in cash flow waterfall that gives the option to handle a single operator, a joint venture with GP/LP and IRR hurdles, a joint venture with a hard preferred equity rate due to the LP, or an option for a hard percentage split of the cash flows for the entire endeavor without using any hurdles.
Well Deployment Configurations per Cohort:
- Start Month
- Drilling Exploration Length
- Production Length
- # of Wells Drilled
- Success Rate (finding gas/oil)
- Cost of Initial Drilling Exploration per Well
- Cost of Ongoing Drilling Exploration per Well
- Cost of Initial Successful Well Deployment
- Cost of Ongoing Extraction per Well
- Initial Flow Rate
- Price per Unit
- Annual Change in Price
- Royalties Due
- Decline Rate of Extraction Flow (exponential decay)
The fixed cost schedule is large, with over 100 line items available to account for adminstrative, research and development, sales and marketing, and other ongoing costs that it takes to keep the business going outside of direct drilling costs. For each item, define the description, start month, and the monthly cost over 20 years.
The assumptions all come together in a monthly and annual cash flow detail that shows how the unit economics look over time. There is also an annual Executive Summary to see primary financial line items and an annual view of the cash flow waterfall results. Plenty of visualizations were added to easily see the effects of a given configuration.
Additionally, KPIs show the average net revenue per well, successful wells found per year, average success rate of drilling, the active wells over time, and more.
The model can easily be used to look at just a single cohort over time or to see the aggregate effect of many wells deployed over the course of time.
How to Get Your Oil and Gas Business Started:
- Conduct market research: Study the oil and gas industry, market demand, and competition.
- Obtain financing: Secure funding through investors, loans, or a combination of both.
- Acquire leases: Obtain leases or rights to extract oil and gas from land and/or offshore platforms.
- Develop a business plan: Outline your operational strategy, marketing and sales approach, and financial projections.
- Hire a team: Assemble a team of skilled professionals, such as geologists, engineers, and drilling specialists.
- Obtain permits: Obtain necessary permits and certifications from local, state, and federal authorities.
- Purchase equipment: Invest in the necessary equipment, such as drilling rigs, production facilities, and transportation vehicles.
- Start drilling: Commence drilling operations and start extracting oil and gas.
- Market and sell: Market and sell your oil and gas products to customers and establish a distribution network.
Note: The specifics may vary based on your location, the size of your business, and the industry regulations.
This template is also included in two bundles:
- All Models Bundle: https://www.eloquens.com/tool/P8Y4TX4v/finance/financial-forecasting-models/financial-models-120-useful-and-usable-logic
- Industry-Specific: https://www.eloquens.com/tool/lrNGt2jL/strategy/business-plans/business-sector-bundle-35-bottom-up-financial-models
This Best Practice includes
1 Excel model and 1 Tutorial Video
Acquire business license for $70.00
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Create a monthly and annual cash flow forecast for multiple Oil and Gas wells deployed over time.
General Oil and Gas extraction businesses.