Future Value Of Geometric.Declining Oil Revenue

Future Value of Geometrically Declining Oil or Gas Revenue

When values vary by a constant percentage from period to period instead of by a constant dollar amount, a geometric gradient series is generated instead of an arithmetic gradient series. The following development generates a factor that permits calculation of the future value, F, or the equivalent uniform series of equal values, A´, for a gometric gradient series of values that has de first term in the gradient represented by A and each subsequent term increasing or decreasing by a geometric ratio, r, which is one plus or minus the constant percent change from period to period.
Example: A new oil or gas well is projected to generate revenue of $200.000 the first year of production with a 10% constant percentage decrease in revenues in each following year for 10 years. What is the future worth of generate revenues if the revenues are reinvested at i * = 15% as received.


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