Average book rate of return method


\(C\): Initial Investment/Capital ($)

E: Total Net Undiscounted Cash Flow during the whole project ($)

\(n\): Life of the Project (years)

\(N\): Total Recoverable Oil Amount (bbl)

\(N_{k}\): Total Recoverable Oil Amount in \(\mathrm{k}^{\text {th }}\) year (bbl)

\(N_{p}\): Total Recoverable Oil Amount in \(\mathrm{n}^{\text {th }}\) year (bbl)

\(Q_{k}\): Oil Production in \(\mathrm{k}^{\text {th }}\) year (bbl)

\(D\): Present worth Factor (dimensionless)

\(W_{p}\): Working Profit per barrel of Oil \((\$ / b b l)\)


P: Profit \((\$)\)

\(\sum\) B: Total End of Year Balance not Amortized ($)

\(\sum \mathrm{B}_{\mathrm{md}}\): Total Mid-Year Balance not Amortized ($)

\(\mathrm{r}\): Annual Average Rate of Return ($)

\(\mathrm{r}_{\mathrm{md}}\): Average Mid Year Rate of Return ($)


\[ \begin{gathered} \sum B=\frac{C}{N} \sum_{k=1}^{n} k \cdot Q_{k} \\ \sum B_{m d}=C\left(n+\frac{1}{2}\right)-\frac{C}{N_{p}} \sum_{k=1}^{n} N_{k} \\ r=\frac{\left(E \cdot W_{p}\right)-C}{\sum B} \\ r_{m d}=\frac{\left(E \cdot W_{p}\right)-C}{\sum B_{m d}} \end{gathered} \]


Serpen, U., Petroleum Economics, Course Notes, ITU Petroleum and Natural Gas Engineering, Istanbul, Turkey, (2008) Page: 45.


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