SPE Project Economics 2

Question 1

A project has an NPV of $0 at a discount rate of 18%. What does this indicate?

Accepted Answer

18% is the project's internal rate of return

Answer

When NPV equals zero, the discount rate used equals the IRR of the project.

Question 2

Which of the following best describes a 'sunk cost' in petroleum project economics?

Accepted Answer

Costs already incurred that cannot be recovered

Answer

Sunk costs are past expenditures that are irrelevant to future economic decisions.

Question 3

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?

Accepted Answer

$29,000

Answer

Net operating income = (70 - 12) × 500 = $58 × 500 = $29,000/day.

Question 4

What is the primary purpose of a sensitivity analysis in project economics?

Accepted Answer

To identify which input variables most affect project value

Answer

Sensitivity analysis measures how changes in individual input variables impact the economic outcome of a project.

Question 5

Under a production sharing contract (PSC), 'cost oil' refers to:

Accepted Answer

The share of production used to recover capital and operating costs

Answer

Cost oil is the portion of production revenue allocated to the contractor to recover allowable expenditures before profit oil is split.

(SPE) Society of Petroleum Engineers Certification Practice Test