True and false questions

1- Severance Taxis atax imposed on the removal of nonrenewable resources such

as crude oil, condensate and natural gas, coalbed methane and carbon dioxide
True False

2- Overhead must be paid for on an ongoing basis, regardless of whether a company is

doing a high or low volume of business
True False

3- An intangible asset is the asset that have a physical form. Intangible assets include both
fixed assets, such as machinery, buildings and land, and current assets, such as
inventory.
True False

4- Depreciation is a method of allocating the cost of intangible asset over its useful life.
True False

5- You may be charged severance tax even if you do not realize a net profit on
your investment
True False

6- In the calculations of payout time, we consider time value of money

True False

7- Royalty is normally charged as a percentage of the gross revenues from the

sale of hydrocarbons, and may be paid in cash or oil
True False

8- Debottlenecking for surface facilities is an acceleration Project

True False

9- IRR is the discount rate that makes the net present value equals to zero
True False

10- Fiscal costs include the capital cost and the operating cost
True False
MCQ

Questions 1 and 2 relate to the following spider diagram which

has been constructed for an oil-development project Z

1- (relates to the Spider Diagram for Project Z)

A decrease in which of these variables will most beneficially affect the

economics of project Z?

a) Oil price.

b) Gas price.

c) Fixed opex.

d) Exchange rate.

2 - (relates to the Spider Diagram for Project Z)

Reconsider the variables that affect project Z, viz.:

(i) Oil price.

(ii) Gas price.

(iii) Fixed opex.

(iv) Exchange rate.

Which of these variables is/are capable of making project Z a lossmaking

project?

a. (i) and (ii) only.

b. (ii) and (iii) only.

c. (i) and (iv) only.

d. None of the variables.

3- Which of the following statements about the difference between capex and
opex is true?

a. Capex occurs only before first oil is produced, after which all expenditure is opex.

b. Capex is discounted at a different rate to opex.

c. Capex relates to the construction of a system of production, whereas opex

relates to the operation and maintenance of these systems.

d. Capex can be always deducted from the tax liability, whereas opex can only be

deducted after first oil.

4- If Project A has an IRR of 15%, and project B has an IRR of 20%, which
of the following statements is true?

a. Project A is more economically viable than project B.

b. Project B is more economically viable than project A.

c. Projects A and B are equally economically.

d. There is not enough information to determine which project is more

economically viable

5- At a discount rate of 10% project A has an NPV of $40m and an NPVI( CPI)
of 0.35 while project B has an NPV of $50m and an NPVI ( CPI) of 0.25.
Consider the following statements.

(i) Project A is more economically profitable than project B.

(ii) Project B is more economically profitable than project A.

(iii) Project A is more economically efficient than project B.

(iv) Project B is more economically efficient than project A.

Which of the above statements is/are true?

a. (i) and (iii) only.

b. (i) and (iv) only.

c. (ii) and (iii) only.

d. (ii) and (iv) only.

6- An accrual accounting method that companies use to allocate the cost of

extracting natural resources such as timber, minerals and oil from the earth

a-Overhead b- Severance Tax c- Depletion d- Depreciation

7- Building and installation cost of platforms is

a- OpEx b- CapEx c- Fiscal cost d- Tax

8- Oil and gas price is one of the risks in the oil and gas industry which type of
risk it is?

a- Technical b- Economical c- Political d- Environmental

9- Inflation is one of the risks in the oil and gas industry which type of risk it
is?

a- Technical b- Economical c- Political d- Environmental

10- Which of the following is not a cash flow item to be considered in a cash flow evaluation
model?

a- Tariff payments from use of pipelines b- Cost of seismic c- Depreciation

of platform d- Platform maintenance expenses