The following matrix represents the payoffs to oil well owners Mike and Frasel.Each of the owners know the exact amount of oil in the pool and the market price of oil.

-Refer to Table.What will be the payoff to each producer in the absence of a unitization contract?
A)Each producer will earn $10
B)Frasel will earn $6 while Mike will earn $16
C)Frasel will earn $16 while Mike will earn $6
D)Each of the well owners will earn $14

Question

The following matrix represents the payoffs to oil well owners Mike and Frasel.Each of the owners know the exact amount of oil in the pool and the market price of oil.

-Refer to Table.What will be the payoff to each producer in the absence of a unitization contract?
A)Each producer will earn $10 
B)Frasel will earn $6 while Mike will earn $16 
C)Frasel will earn $16 while Mike will earn $6 
D)Each of the well owners will earn $14

Quizplus · Accepted Answer

In the absence of a unitization contract, each producer will receive the revenue from the sale of the oil produced from their own well. Frasel's well produces 40% of the total oil, so Frasel will receive 40% of the total revenue, which is $10. Mike's well produces 60% of the total oil, so Mike will receive 60% of the total revenue, which is $15.

The Following Matrix Represents the Payoffs to Oil Well Owners