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At its core, PHDwin does a very simple calculation for determining the non-discounted cash flow. This applies on a monthly, annual, or total remaining life basis.
Net Revenue - Net Expenses - Net Taxes - Net Investments = Net Cash Flow
All of the output in PHDwin is always on a Net basis, meaning it adjusts for the specific Working Interest and Revenue Interest input in the Ownership tab of the Case Editor within the program. You can click on each component of the formula to get more details about how that value is calculated.
Net Revenue Calculation
Net revenue easily has the most elements involved in the calculation. Well start with another general formula and then break it down into its components as well.
Net Volume x Actualized Price = Net Revenue
Net Volume is based on Gross Volume, adjusted for any Shrink values, and then adjusted by the Revenue Interest.
Gross Volume is input by the user either in the Monthly History table or through a Projection on the graph.
Shrink usually applies to Gas, and can be due to on-lease consumption, leakage during transport, or the extraction of NGLs. Shrinkage is entered in the Shrinkage Form, as either a percentage or a fixed volume, and can be editable using the Global or Grid Editor.
The Net Volume calculation varies based on whether Shrink is entered as a percentage or fixed volume as follows:
Gross Volume x (1- (Shrink%/100)) x Revenue Interest = Net Volume
or
(Gross Volume Shrink Volume) x Revenue Interest = Net Volume
Actualized Price is based on the Input Base Price, adjusted for any Differentials and Escalations. In the case of Gas, it can be adjusted further by the BTU Factor. All of these components are entered directly on the Prices tab of the Case Editor.
Input Base Price can use a Price Model or be entered on a Case Specific basis.
Differentials can only be used when the Base Price is entered as a Price Model. PHDwin allows for both a percentage differential and a flat dollar adjustment. They can be a positive or negative adjustment to the price. The percentage always applies first.
Escalations can be entered as either a percentage or dollar adjustment, but not both. They can also be set as Fixed Escalations (flat jump increase/decrease) or Continuous (gradually changing over the duration of the escalation segment).
BTU Factor only applies to the Actualized Price for Gas and only when the Base Input Price is entered in $/MMBtu.
Escalated vs. Non-escalated price differentials- The Actualized Price can also vary based on whether the Project Properties is set to Escalate Price Differentials. That setting can be found on the Economics tab of the Project Properties. There are four different formulas for calculating the Actualized Price depending on the combination of the above components. Well use the Gas Price in this example as it includes all of the components. They are as follows:
Escalated differential with Escalation%
[Input Gas Price + (Input Gas Price x (Differential%/100)) + Differential$] x (1 + Escalation%/100) x (BTU Factor/1000) = Actualized Price
Escalated differential with Escalation$
[Input Gas Price + (Input Gas Price x (Differential%/100)) + Differential$ + Escalation$] x (BTU Factor/1000) = Actualized Price
Non-escalated differential with Escalation%
[(Input Gas Price x (Differential%/100)) + Differential$ + (Input Gas Price x (1+ Escalation%/100))] x (BTU Factor/1000) = Actualized Price
Non-escalated differential with Escalation$
[(Input Gas Price x (Differential%/100)) + Differential$ + Input Gas Price + Escalation$] x (BTU Factor/1000) = Actualized Price
Note that because Escalations build on the previous years escalated price, this only applies to the first years price, or when the base price changes to a new segment of the price deck.
Net Expense Calculation
Net Expense is just the sum of all the different Net Expense types, including Well Cost, Fixed Cost, Op Cost, Trans Cost and Other Cost. The base cost for all Expense types is entered directly through the Expense tab of the Case Editor. Each expense can be adjusted further by an Escalation (in either % or $, but not both)
Net Well Cost + Net Fixed Cost + Net Op Cost + Net Trans Cost + Net Op Cost = Net Expense
Net Well Cost is input as a monthly value based on the Well Count product which can change from month to month. PHDwin will default to a Well Count of 1 if it is not specified. Well Count can be input in the Monthly History tab of the Case Editor or projected on the graph.
Well Cost Input x (1+ Escalation%/100) x Well Count x Working Interest = Net Well Cost
or
(Well Cost Input + Escalation$) x Well Count x Working Interest = Net Well Cost
Net Fixed Cost is input as a fixed monthly value and is only adjusted by Escalations and the Working Interest. It often shows on reports as Net Lease Costs
Fixed Cost Input x (1+ Escalation%/100) x Working Interest = Net Fixed Cost
or
(Fixed Cost Input + Escalation$) x Working Interest = Net Fixed Cost
Net Op Cost and Net Other Cost are both $/unit based costs applied to the Gross Volumes and adjusted by the Working Interest. Its the same calculation for Op or Other Cost.
Op Cost Input x (1+ Escalation%/100) x Gross Volume x Working Interest = Net Op Cost
or
(Op Cost Input + Escalation$) x Gross Volume x Working Interest = Net Op Cost
Net Trans Cost is a $/unit based cost applied to the Net Volumes, accounting for Revenue Interest adjustments as well as Shrink.
Trans Cost Input x (1+ Escalation%/100) x Net Volume = Net Trans Cost
or
(Trans Cost Input + Escalation$) x Net Volume = Net Trans Cost
Note that because Escalations build on the previous years escalated expense, this only applies to the first years expense, or when the base cost input changes to a new segment of the expense deck.
Net Tax Calculation
Net Tax is the sum of State Tax and Local Tax. The calculations for each can become complicated as there are various settings available for each tax. This outlines the most common tax setup. Both values are input on the Taxes tab of the Case Editor.
State Tax is usually calculated on the individual product stream level. It usually has a Tax% value that applies to Net Revenue associated with an individual product (ex. Gas or Oil). It can also have a $/unit (ex. Mcf or bbl) or $/month component. All Expense types (Well, Fixed, Op, Trans, Other) have the option to be deducted prior to the State Tax calculation.
Local Tax is usually calculated on a combined stream of all products. It usually has a Tax% value that applies to the combined Net Revenue associated with all revenue generating products (Gas and Oil plus any additional products). It can also have a $/unit (BOE) or $/month component. All Expense types (Well, Fixed, Op, Trans, Other) have the option to be deducted prior to the Local Tax calculation. The State Tax value can also be set to deduct prior to the Local Tax Calculation.
The calculations for both taxes are the same, just using different Revenue, Volume and Deduction options:
[(Net Revenue - Deductions) x (Tax% Input/100)] + [Net Volume x ($/unit Tax Input)] = Net Tax
Or
[(Net Revenue - Deductions) x (Tax% input/100)] + [Revenue Interest x ($/mo. Tax Input)] = Net Tax
Net Investment Calculation
Net Investment is the most straightforward calculation. Each investment entered on the Investment tab of the Case Editor has the option to be entered as a Gross Investment or Net Investment. Gross Investments are adjusted by the Working Interest, whereas Net Investments are not adjusted at all.
(Gross Investment Input x Working Interest) + Net Investment Input = Net Investment