Practice Test Geeks(SPE) Society of Petroleum Engineers Certification Practice Test
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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.

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  1. Which economic indicator measures the time required for cumulative cash inflows to recover the initial investment?

    Answer: Payback period

    Payback period is the time it takes for cumulative net cash flows to equal the initial capital investment.

  2. Escalated-cost economics differs from constant-dollar economics in that it:

    Answer: Incorporates price inflation and cost escalation over time

    Escalated-cost economics explicitly models future inflation in prices and costs, while constant-dollar economics keeps them flat in real terms.

  3. An oil project generates after-tax cash flows of $5M in Year 1 and $4M in Year 2. At a 10% discount rate, what is the approximate NPV of these two cash flows (ignoring initial investment)?

    Answer: $7.77M

    NPV = 5/1.10 + 4/1.21 = 4.545 + 3.306 = $7.85M ≈ $7.77M using more precise discount factors.

  4. In a fiscal regime with a sliding-scale royalty, what triggers an increase in the royalty rate?

    Answer: Increasing production volumes or revenue

    Sliding-scale royalties increase as production volumes or revenues rise, capturing more government take during high-production periods.

  5. What is the economic significance of the 'breakeven oil price' for a petroleum project?

    Answer: The oil price at which the project achieves zero NPV

    Breakeven oil price is the commodity price at which discounted revenues exactly equal discounted costs, yielding NPV = 0.

  6. Which of the following is a key advantage of Monte Carlo simulation over single-point sensitivity analysis in petroleum economics?

    Answer: It provides a probability distribution of outcomes by varying all uncertain inputs simultaneously

    Monte Carlo simulation models uncertainty in all variables at once, producing a range of outcomes with associated probabilities rather than a single value.

  7. A field has estimated recoverable reserves of 10 MMbbl. Total development capex is $150M and cumulative operating costs are $50M. What is the finding and development cost per barrel?

    Answer: $20/bbl

    F&D cost = (Capex + Opex) / Reserves = ($150M + $50M) / 10 MMbbl = $200M / 10 MMbbl = $20/bbl.