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Oil Well Value

After the well is auctioned, the OF program will assign a “market value” to that well.

The market value of any oil well will not be its original purchase price. Instead it will be based on what somebody else was willing to pay for the well. In other words, the second highest bid becomes the market value of this asset to the financier who bought it.

This means that for every well bought at an auction, the purchaser will pay more than its market value. The difference between its market value (the second highest bid) and the purchase price becomes a capital loss. This capital loss will be recorded in the loss schedule of that province and can be used to reduce taxes.

The market value of the oil well will be used to calculate the well amortization rate (WAR).

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