Abel and Bello own adjoining tracts of land in Arkansas, a state that subscribes to the ownership-inplace theory. Abel drilled a well on his tract...
View the step-by-step solution to:

Question

1.      Abel and Bello own adjoining tracts of land in Arkansas, a state that subscribes to the

ownership-inplace theory. Abel drilled a well on his tract and started oil production. The well has been quite prolific and Bello is convinced that some of the oil produced on Abel's land is drained from Bello's land. Bello brought a lawsuit against Abel seeking money damages. The court decided in favor of Abel, holding as follows: "The owner of a tract of land acquires title to the oil and gas which he produces from wells drilled thereon, though it may be proved that part of such oil or gas migrated from adjoining lands." Bello considers the court's ruling to be inconsistent with the concept of ownership in place. Did the court take the correct legal position?


2.      On July 15, 2017, Ashley signed an oil and gas lease with Energy Partners, LP for a term of three years and so long as oil and gas is produced on her 50-acre tract of land in Grand Forks. The Delay Rental Clause of the lease provides:


This lease shall terminate unless Lessee shall, on or before 1 year from the date hereof, make or tender the payments hereinafter provided or shall within said period commence drilling operations for a well for oil and gas on the leased land and prosecute the drilling of such well with reasonable diligence until oil or gas is found in quantities deemed paying by Lessee or until Lessee deems that further drilling would be profitable or impracticable in which event Lessee may abandon the well . . . .


Energy Partners, LP has not recorded any presence on the leased land but its accountant sent a delay rental payment in the proper amount to Ashley on July 20, 2018. Ashley cashed the check to pay off her credit card bills.

Can Ashley argue successfully that the lease has terminated?


3.      An oil company has decided that instead of flaring the associated natural gas separated along with crude oil, recover the lost heat by using the waste-heat recovery system. For pilot test runs, three designs are offered; each has a lifetime of 5 years. The costs associated with each design are as follows:

 Design 1 Design 2 Design 3

Capital Investment($) 1,200,000 900,000 650,000

Operating cost per 103 scf of natural gas ($) 1.3 1.6 2.1

Annual Return of Investment 15% 15% 15%

Determine for what volume range of produced annual gas, is each design preferred. Display your result in a graph


4.      Assume that a distillation unit with an initial cost of $200,000 is expected to have a useful life of 10 years, with a salvage value of $10,000 at the end of its life. Also, it is expected to generate a net cash flow above maintenance and expenses, amounting to $50,000 each year. Assuming a selected discount rate of 10%, calculate the NPV


5.      A tank farm is receiving crude oil through a pipeline with measurements of the crude oil level made periodically. The annual labor cost for the manual operation is estimated to be $50,000. However, if an automated level-measuring system is installed, it will cost $150,000. Maintenance and operating expenses of the system are $15,000 and $5,000, respectively. The system will be operated for 5 years. Should the automated level-measuring system be installed? Assume that the interest rate is 10%.


6.      An oil drilling company is considering bidding on a $110 million contract for drilling oil wells. The company estimates that it has a 60% chance of winning the contract at this bid. If the company wins the contract, it will have three alternatives: (1) to drill the oil wells using the company's existing facilities, (2) to drill the oil wells using new facilities, and (3) to subcontract the drilling to a number of smaller companies. The results from these alternatives are given as follows: Outcomes Probability Profit ($ million) 1. Using existing facilities: Success Moderate Failure 2. Using new facilities: Success Moderate Failure 3. Subcontract: Moderate 0.30 0.60 0.10 0.50 0.30 0.20 1.00 600 300 -100 300 200 -40 250 The cost of preparing the contract proposal is $2 million. If the company does not make a bid, it will invest in an alternative venture with a guaranteed profit of $30 million. Construct a sequential decision tree for this decision situation, and determine if the company should make a bid.

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes