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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: JimisJim who wrote (123993)	9/2/2009 8:06:25 PM
From: Elroy Jetson	Read Replies (2) \| Respond to 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. .

To: JimisJim who wrote (123993)	9/2/2009 8:55:57 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 206092

If Petrobras uses hurdle prices, their hurdle price for their risky and expensive offshore wells should be far lower than their more certain and less costly projects, not higher. Using a price hurdle rate rather than an ROI with a target price: you might use $42 per barrel for investment in an existing producing platform to keep it in production; you might use $34 per barrel for a new step-out well to expand a producing field; you might use $27 per barrel for a risky offshore well outside of a confirmed field. Because the investment is risky you want to know it will pay off at a lower price, or provide you a higher return at a higher price per barrel to pay you for taking the risk. .