Content

Introduction …………………………………………………………………………………… 2

1. The theory of economical appraisals of capital investment ……………………………3

1.1. Essence of economical appraisals of oil reserves development ……….….. 3

1.2. Risk estimation …………………………………………………………………. 12

1.3. Estimation of volume reserves ………………………………………………... 15

2. Polar Lights Company review …………………………………………………………… 21

2.1. General review …………………………………………………………………. 21

2.2. Finance review …………………………………………………………………. 22

3. Financial estimation of capital investment program …………………………………...26

3.1. Calculation of break-even success and finance estimation of one well ….. 26

3.2. Drilling schedule ……………………………………………………………...… 29

3.3. Assumptions and results of financial estimation ………………………….… 32

4. Oil pricing …………………………………………………………………………………. 37

4.1. History of oil pricing ……………………………………………………………. 37

4.2. Oil price structure. World oil market long-term prospects …………………. 41

5. Oil price influence on financial estimation of the company ………………………….. 44

5.1. Analysis of different price situations …………………………………………. 44

5.2. Analysis of NPV sensitivity at different markets ……………………………. 45

Conclusion …………………………………………………………………………………… 51

Notes …………………………………………………………………………………………. 53

Attachments

Introduction

Today Russia has serious changes, scale administrative reform is carried out, the role of the ministries and departments varies, new approaches to planning activity and to performance evaluation of state machinery are formed. According to the forecast of Ministry of Economic Development and Trade and trade steady development of our country in the nearest and medium-dated prospect will depend on efficiency of natural-resources potential use. Significant qualitative and quantitative changes of oil reserves structure have occurred by present time in condition of Russia raw-material base. Provision of oil production by active highly productive reserves and oil resources has considerably decreased in connection with high degree of development of large and highly productive reserves. Involving difficult reserves into oil development continuously grows in these conditions. Complex distribution of reserves in such oil reservoirs demands analysis of the big number of development variants, and during stage of falling production - the big number of methods for stimulation of formation. The final choice of a development variant or method for stimulation of formation should be based on its economic efficiency.

Now the primary goal of Polar Lights Company is active development of the new reserve areas with the purpose of reserves increment. Long-term planning of capital investment in the drilling program, estimation of economic efficiency of investment by standard financial indexes, account of risks which are inherent to oil branch, and of other external factors are necessary for performance of this task. Results of the received calculations and conclusions of work would help the company management with decision-making on long-term investment into development of satellite reserves.

The work includes main principles of investment into development of oil reserves, criterions of investment economic estimation, concept of risks in oil branch, estimation of accessible reserve volume.

The work contains the brief review of the Polar Lights Company and its current financial results. The basic financial parameters on one well and also on all satellite territory proceeding from oil production plan and variants of success probability are calculated. Further the basic external factor influencing on financial results, - oil pricing is analyzed. The condition and efficiency of modern tax system of the Russian Federation and its influence on financial results of the company is considered. The basic calculations and conclusions are accompanied by corresponding tables, schedules and diagrams.