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. In project economics, depletion, depreciation, and amortization (DD&A) are important because they:

    Answer: Represent non-cash charges that reduce taxable income

    DD&A are non-cash deductions that reduce taxable income, thereby decreasing tax liability and improving after-tax cash flow.

  2. Which term describes the government's total share of project revenues through royalties, taxes, and profit oil in international petroleum agreements?

    Answer: Government take

    Government take encompasses all forms of fiscal extraction including royalties, income taxes, state participation, and profit oil allocations.

  3. A deepwater project requires $2B in capex with a 5-year development period before first production. How does this extended development timeline most directly impact economics?

    Answer: It increases the present value cost of capital due to discounting over a longer pre-production period

    Cash outflows during a long pre-production period are discounted heavily, increasing their effective cost in present value terms.

  4. What is 'ringfencing' in petroleum fiscal systems?

    Answer: A provision preventing losses from one contract area from offsetting profits in another

    Ringfencing restricts the use of costs and losses from one license area to offset income in another, protecting government revenue.

  5. When comparing two mutually exclusive projects with different investment sizes, which metric is most appropriate for ranking them?

    Answer: NPV

    NPV directly measures absolute value creation in dollars and is the correct metric for ranking mutually exclusive projects regardless of size.

  6. An oil company acquires reserves through a farm-in agreement for $30M with a 50% working interest. The proved reserves are 6 MMbbl. What is the acquisition cost per BOE?

    Answer: $10/BOE

    Acquisition cost = $30M / (6 MMbbl × 50% WI) = $30M / 3 MMbbl = $10/BOE.

  7. A project's real IRR is 15% and annual inflation is 4%. What is the approximate nominal IRR?

    Answer: 19.6%

    Using the Fisher equation: Nominal IRR = (1 + 0.15)(1 + 0.04) - 1 = 1.196 - 1 = 19.6%.