True and false questions
1- Severance Tax is a tax 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
Answer True and false
1- True
2- True
3- False
4- False
5- True
6- False
7- True
8- True
9- True
10- False
MCQ
1- 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
2- Building and installation cost of platforms is
a- OpEx b- CapEx c- Fiscal cost d- Tax
3- 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
4- 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
5- 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 dPlatform maintenance expenses
Questions 6 and 7 relate to the following spider diagram which
has been constructed for an oil-development project Z
6- (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.
7 - (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.
8- 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.
9- 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
10- 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.
Answer
1- d
2- b
3- b
4- b
5- c
6- a
7- c
8- c
9- d
10- c