Project Economics Flashcards
7 cards from real SPE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Project Economics flashcards as text
A project has an NPV of $0 at a discount rate of 18%. What does this indicate?
Answer: 18% is the project's internal rate of return
When NPV equals zero, the discount rate used equals the IRR of the project.
Which of the following best describes a 'sunk cost' in petroleum project economics?
Answer: Costs already incurred that cannot be recovered
Sunk costs are past expenditures that are irrelevant to future economic decisions.
A well produces 500 BOPD with a lifting cost of $12/bbl and an oil price of $70/bbl. What is the daily net operating income?
Answer: $29,000
Net operating income = (70 - 12) × 500 = $58 × 500 = $29,000/day.
What is the primary purpose of a sensitivity analysis in project economics?
Answer: To identify which input variables most affect project value
Sensitivity analysis measures how changes in individual input variables impact the economic outcome of a project.
Under a production sharing contract (PSC), 'cost oil' refers to:
Answer: The share of production used to recover capital and operating costs
Cost oil is the portion of production revenue allocated to the contractor to recover allowable expenditures before profit oil is split.
Which discount rate is most appropriate when evaluating a petroleum project where the company's cost of financing is well-defined?
Answer: Weighted average cost of capital (WACC)
WACC reflects the blended cost of equity and debt financing and is the standard hurdle rate for project evaluation.
A project's profitability index (PI) is calculated as 1.35. This means:
Answer: For every $1 invested, the project returns $1.35 in present value
PI = PV of future cash flows / Initial investment; a PI of 1.35 means each dollar invested generates $1.35 in present value.