Frontiers · Oil & Energy · Methodology
A finite-life model with visible obligations.
Oil & Energy model methodology
Inspect production, waterfall, timing, refining, midstream and power formulas and their boundaries.
Production and volume cap
Annual potential barrels = [base initial rate × (1 − decline)^(year − 1) + eligible new-cohort rate] × 365 × uptime. New-cohort decline begins in its first producing year. Actual production is capped by remaining gross barrels. The cap is never increased automatically. Annual decline is an effective between-year decline, not a continuous reservoir-engineering curve.
Price and costs
Realised price = max(0, initial benchmark × (1 + growth)^(year − 1) + differential). Negative realised oil prices are not simulated. Variable cost applies to actual barrels. Fixed costs, sustaining capital, drilling capital and closure inflate at the selected cost rate. Drilling capital occurs only in its selected year. Fixed and sustaining costs persist through the model life even at zero production.
Producing-interest waterfall
Net revenue = gross field revenue × WI × (1 − royalty burden). Production tax = gross field revenue × WI × tax rate. Deduct WI share of operating costs, sustaining / drilling capital and final closure, then debt interest and final principal. All field costs are entered gross; acquisition price is for the WI interest. Debt finances a share of acquisition price only. Initial equity includes acquisition costs. There is no asset sale at exit.
Royalty waterfall
Gross royalty = field sales × effective royalty share. Deduct actual barrels × royalty share × contractual deduction per royalty barrel. Floor receipts at zero, then deduct royalty tax and fixed administration. No drilling or closure costs are charged to this illustrative royalty. Royalty purchase is independent of the WI purchase; the two cash-flow sets must not be added as if they were one position.
Timing and return metrics
Initial capital is paid at time zero. Annual cash flows, including new drilling, occur at year-end; the drilling convention understates funding needs if capital is actually paid earlier. NPV uses the selected annual discount rate. IRR is shown only if the numerical root search finds one result; multiple or absent roots show “Unavailable”. The search does not prove all roots are found. Cash multiple counts every negative cash flow as a contribution. A zero-contribution case has no meaningful multiple.
Token vehicle
Investor cash = (vehicle cash − annual vehicle fee) × investor share. The fee is a percentage of original purchase cost, charged at each year-end regardless of production. Investors are assumed to fund pro-rata deficits; no limited-liability, default or debt-token waterfall is simulated.
Refining
3–2–1 spread = (2 × gasoline $/gal × 42 + distillate $/gal × 42 − 3 × crude $/bbl) ÷ 3. Throughput = capacity × 365 × utilisation. Contribution = throughput × (spread − variable cost) − fixed cost. A fixed yield basket, not a full plant valuation; no capital, debt, tax or inventory timing.
Midstream
Billed volume = max(actual throughput, capacity × 365 × MVC). Collected revenue = billed × tariff × collection rate. Annual cash = collected revenue − (actual × variable cost + fixed cost), flat over the contract life; NPV discounts year-end cash and deducts initial capital. Excludes make-up rights, changing tariffs, maintenance capital, closure and insolvency.
Power
Energy = MW × 8,760 × capacity factor × (1 − curtailment). Capacity revenue = MW × accreditation × $/MW-day × 365. Capital is paid at time zero; delay shifts all operating years and PPA commencement. LCOE = (capital + PV of costs incl. closure) ÷ PV of energy. No degradation, tax, inflation, fuel escalation, replacements or residual value.
Boundaries
Before corporate and personal income tax. No depreciation, loss carryforwards, FX, hedging, gas / NGL revenue, working capital, cost recovery, profit oil, reserves certification or automatic economic-limit shutdown. This is not a production-sharing-contract model. No default or limited-liability cap is applied to debt and cash calls. No decommissioning reserve account is funded; the full cost falls at the selected final year. Unproduced barrels have zero residual value. Illustrative assumptions, not market quotes. All values are USD. Research reviewed 9 October 2026. The image is a conceptual AI illustration.