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Gold/Mining/Energy : Big Dog's Boom Boom Room
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To: JimisJim who wrote (123993)9/2/2009 8:06:25 PM
From: Elroy Jetson  Read Replies (2) of 206092
 
A hurdle rate shouldn't be higher just because most of your projects are of an expensive type. Your average production cost may be higher, but not your hurdle rate.

At Chevron, and likely most places, the analysis is slightly different. The $38 per barrel is the target price used for analysis and the hurdle rate is perhaps an 18% return on investment.

So a project is reported as providing a 23% ROI at the $38 target price. Sensitivity analysis will show what the ROI is on other lower target prices.

The actual hurdle ROI might be 15% for investments in an existing producing field, 18% for a step-out, and 24% for a wildcat - all at the $38 target price.

In statements to investors, this combination of ROI hurdles may be referred to a a $38 hurdle rate.

Likely I'm not telling you anything you didn't already know, but the framework of this analysis is also likely unknown to many.
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