Module 1.7 Economics

Question 1

Objective 1 Cash Flow Forecast: The student will name the key components needed to develop a cash flow for an investment opportunity.

Answer 1

Pg 5

Question 2

Objective 2 Project Interests: The student will explain how a company’s ownership could vary in an investment opportunity.

Answer 2

Pg 7

Question 3

Objective 3 Capital Investments: The student will explain what is meant by capital investment.

Answer 3

Pg 9

Question 4

Objective 4 Reserves: The student will name and explain three methods of estimating the reserves associated with a project.

Answer 4

Pg 12

Question 5

Objective 5 Production Forecast: The student will name at least three factors, which will influence the production of a well.

Answer 5

Pg 15

Question 6

Objective 6 Price Forecast: The student will name the three initial considerations in the pricing of a hydrocarbon product and explain the factors, which will influence forecasting of these prices with time.

Answer 6

Pg 17

Question 7

Objective 7 Operating Costs: The student will explain what is considered an operating cost.

Answer 7

Pg 22

Question 8

Objective 8 Royalties: The student will explain what is meant by the term “royalty” with regards to oil or gas production.

Answer 8

Pg 24

Question 9

Objective 9 Income Tax: The student will explain how income tax impacts on the cash flow of a project.

Answer 9

Pg 26

Question 10

Objective 10 Other Benefits and Expenses: The student will name the other potential considerations, which could impact on the cash flow of a project.

Answer 10

Pg 27

Question 11

Objective 11 Cash Flow Streams: The student will calculate a cash flow stream if provided with the cash stream components (calculations of royalties or income taxes would be provided).

Answer 11

Pg 28

Question 12

Objective 12 Oil Company Management: The student will describe the general management hierarchy of an oil company and name the three key sources of funds for capital investments.

Answer 12

Pg 30

Question 13

Objective 13 Payout: The student will define the term payout and demonstrate a calculation of payout.

Answer 13

Pg 32

Question 14

Objective 14 Present Value: The student will define the term present value (PV) and demonstrate a simple calculation of present value.

Answer 14

Pg 34

Question 15

Objective 15 Rate of Return: The student will define the term discounted cash flow rate of return (DCF ROR) and select the proper value if presented with the data necessary to determine the DCF ROR.

Answer 15

Pg 37

Question 16

Objective 16 Profit to Investment Ratios: The student will use profit to investment ratios in ranking several investment opportunities.

Answer 16

Pg 39

Question 17

Objective 17 Risk: The student will define the term risk as it relates to oil industry investments and identify the various categories of reserves as they relate to risk.

Answer 17

Pg 41

Question 18

Objective 18 Ranking: The student will rank the reserve categories according to the level of risk and rank drilling locations according to the level of risk.

Answer 18

Pg 43

Question 19

Objective 19 Investment Selection: The student will make some basic investment selections if provided economic criteria.

Answer 19

Pg 44

Question 20

Question 1:

Answer 20

B)

Question 21

Question 2:

Answer 21

B)

Question 22

Question 3:

Answer 22

A)

Question 23

Question 4:

Answer 23

A)

Question 24

Question 5:

Answer 24

B)

Question 25

Question 6:

Answer 25

A)

Question 26

Question 7:

Answer 26

A)

Question 27

Question 8:

Answer 27

D)

Question 28

Question 9:

Answer 28

A)

Question 29

Question 10:

Answer 29

A)

Question 30

Question 11:

Answer 30

D)

Question 31

Question 12:

Answer 31

B)

Question 32

Question 13:

Answer 32

B)

Question 33

Question 14:

Answer 33

A)

Question 34

Question 15:

Answer 34

C)

Question 35

Question 16:

Answer 35

B)

Question 36

Question 17:

Answer 36

C)