Dr,
If you are quoting $US then you are off the mark by almost a factor of 10.
Where do you get these figures from?
Or is it a typo?
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Bermuda,
NZO chairman's address to the AGM on 29 Oct. included these per bbl figures re Tui (in NZ$):
Production expense $17, Marketing $7, Dep and Amortisation $ 16
So cost before royalty and tax = NZ$40.
Using oil at US$45/barrel, royalty = US$5.6 or NZ$10.
Tax on profit = NZ$10.
All up cost and tax to NZO per barrel = NZ$60.
So profit to NZO = NZ$23/barrel.
Are the figures right?
If they are, Tui will need to be shut down if oil goes to US$30/barrel?
Depreciation/Amortisation is the writing down of the book value of the asset over it's useful life. Yes there should be money spent on maintenance but it is nothing like the amount that is expensed through depreciation.
Depreciation and providing for futre income streams are unrelated. The $16 of depreciation will only relate to the Tui project expenditure.
Buffet once asked "Does management think the tooth fairy pays for capital expenditures?" .... think about 'cash' and future (capital} requirements to replace the current cash flows so NZO can continue to prosper well inot the future ... thats what i was trying to get at when suggesting that D&A are in essence 'cash' .... even though in pure accounting terms you are correct in saying what you have said.
Let's think this through.
NZO spends, say $100m finding and developing an oilfield. The $100m is then capitalised. This could come from shareholders' funds or it could come from borrowings.
Let's assume it comes from borrowings. As NZO generates revenue from the oil field, it sets aside $100m as amortisation of the oilfield. This is then used to pay off the borrowings.
Net net, NZO is no better off unless it used shareholders' funds to fund the $100m. In which case, NZO will have $100m in cash at the end of it all. It will then use the $100m to try and find a new well to replace the depleting one - otherwise, NZO goes out of business.
Remember dividends can only be paid from profits so amortisation and depreciation arec real expenses.
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If readers wish to know more about this Depreciation/Amortisation, please refer to the NZOG’s Financial Statements for the year ended 30 June 2008: -
http://www.nzog.net/f111,57934/57934...it_Opinion.pdf
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17 Exploration and evaluation, development and production assets
a. Exploration and evaluation assets
b. Development assets
c. Production assets
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