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Resevoir Engineering

Oil well production in OilFinancier follows exactly theoretical reservoir behavior, so financiers really can't apply their reservoir engineering skills for any kind of advantage. Rather, OilFinancier is mostly about handling wisely and skillfully the financial parameters of royalties, corporate taxes, and abandonment costs.

When a well is put up for auction, its initial flow rate and decline rate will be posted. From these values, the OilFinancier program calculates these secondary well parameters: the production curve, estimated well life, and estimated total production. From these secondary values, the OilFinancier program then calculates two tertiary accounting parameters called Well Amortization Rate (WAR) and Abandonment Expense Rate (AER) for each well. These two parameters are important for reasonably accurate figures on balance sheets and income statements.

While these secondary and tertiary values cannot be exact (they do not account for changing oil prices, business synergies, or effects of debt), they are reasonable estimates of the oil well's lifetime performance. Accountants, in all industries, are always making estimates at to how assets will be consumed during their useful lives or how liabilities will accrue. If the accountants are making reasonable estimates, then better business decisions are more likely.

Financiers really have no control over these calculations. It is better to assume that they are made by an independent petroleum engineering company operating under industry accepted practices. So these calculations are the same for all oil financiers in the seminar.

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