Part 5/7:
− $3,000 (severance tax)
− $5,800 (LOE expenses)
= $21,057 (net operating income for the month)
This figure represents the profit that the operator effectively earns from this well each month.
Valuing the Well
To assess the overall value of this well, investors often look at the monthly cash flow and project it over a period of time. The presenter uses a common valuation method: multiplying the monthly net income by 36 months (or three years) to estimate the well’s value.
Doing this calculation:
$21,057 × 36 months ≈ $757,000
This suggests that, based solely on current cash flows, the well is worth approximately $750,000 to $760,000.