An interviewing question: You are a consultant to a gas exploration company. Gas is avery pro-cyclical commodity and has a high beta.
You areexploring a field and you are certain that it has a capacity of x million cubic meters of gas. You have sold the productionschedule in the forward market for $20 million. It costs $10million to set up the drill, and 9 out of 10 times, this works thefirst time.
1 out of 10 times, you must try again, and this againhas a 90% chance of success (and so on). In 3 minutes or less,face-to-face with the client: how would you advise the client tovalue this project? What is the rough value?
An interviewing question: You are a consultant to a gas exploration company. Gas is a very pro-cyclical commodity and has a high beta. You are exploring a field and you are certain that it has a capacity ofx million cubic meters of gas.
You have sold the production schedule in the forward market for $20 million. It costs $10 million to set up the drill, and 9 out of 10 times, this works the first time. 1 out of 10 times, you must try again, and this again has a 90% chance of success (and so on). In 3 minutes or less face-to-face with the client: how would you advise the client to value this project? What is the rough value?