Page 92 - Principles of Applied Reservoir Simulation 2E

Part I: Reservoir Engineering Primer 11

reserves definitions are quantified as follows:
Proved reserves = P^ = |i - 1.28O
Probable reserves = P 50 = |i
Possible reserves = P 10 = [I + 1.28O
The normal distribution can be used to associate an estimate of the likelihood
of occurrence of any particular prediction case with its corresponding economic
forecast.

9.2 Basic Economic Concepts

The cash flow of a project is the net cash generated or expended on the
project as a function of time. The time value of money is included in economic
analyses by applying a discount rate to adjust the value of money to the value
during a base year. The discount rate is the adjustment factor, and the resulting
cash flow is called the discounted cash flow. The net present value (NPV) of
the cash flow is the value of the cash flow at a specified discount rate. The
discount rate at which NPV is zero is called the discounted cash flow return on
investment (DCFROI) or Internal Rate of Return (IRR).
A typical plot of NPV as a function of time is shown in Figure 9-1. The
early time part of the figure shows a negative NPV and indicates that the project

Time (Years)

Figure 9-1. Typical cash flow