Test ID = 25

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1. (10) The Force Majeure clause in a contract is:
    (A) A clause in a contract which allows an Operator to not meet its obligations due to unforeseen conditions. These conditions were non-existent at the signing of the contrac.
    (B) A clause in a contract, specifying that because the Operator would be under extreme hardship to execute, allows an Operator not to meet its obligation.
    (C) A clause in a contract, specifying that the Operator is not responsible for certain conditions that make it impossible to fulfill a contractual obligation (i.e. weather conditions do not permit the drilling a well on time).
    (D) A clause in a contract, specifying that civil war, riots, earthquakes or other drastic events (called acts of God), that could not have been anticipated and outside the control of the Operator make fulfillment of contract obligations impossible and thus, relieves the Operator of liabilty.


2. (170) The disadvantage of a high royalty percentage in a production sharing contract is:
    (A) Discourages development of mariginal fields
    (B) Discourages additional investments for secondary or enhanced recovery where risk is high.
    (C) Is counter to the intent of the PSC to allow the operator to recoup some of his expenditures through production of oil.
    (D) All of the above


3. (100) There is a difference between a production sharing contract (PSC) and a risk service contract RSC contracts in that
    (A) under a risk service contract (RSC) a contractor has no interest in production unless paid in kind or has a preferential right to purchase.
    (B) under a risk service contract, the contractor may gain an ownership in production through exceeding targets on production.


4. (110) Frequently, signature bonuses are:
    (A) Not paid until first production.
    (B) Used by the NOC to finance their part of the PSC.
    (C) subject to negotiations.


5. (40) Evaluation of the sale of lease is compared with the holding the lease. There are investments needed in the future which may exceed cash flow. Cash flows are discounted by an assumed interest rate i, in evaluating the property. Increasing the interest rate
    (A) will reduce the present value of the property, justifying a lower sales price.
    (B) can increase or reduce the present value of the property.
    (C) can increase the present value of the property, justifying a higher sales price


6. (20) The difference between investment credits and uplift in a PSC is:
    (A) Nothing, They are identical.
    (B) Uplift is a mechanism to ensure that the Contractor recovers his costs, while investment credits helps cost recovey of only investments.
    (C) Uplift applies to all capital costs while investments credits apply only to investment costs, such as platforms, pipeline and processing equipment.


7. (130) Profit oil splits (gov't/contractor) generally decline as production or cumulative production increases in a discrete stepwise manner.
    (A) True
    (B) False


8. (80) Under a PSA, is it possible that the NPV of the equity oil to the Operator goes down with an increase in oil prices?
    (A) No. Unless of course there is a price cap.
    (B) Yes, it can happen even without a price cap.


9. (150) Royalty is collected on the profit oil fraction.
    (A) True
    (B) False


10. (160) The intent of cost oil recovery is to:
    (A) Guarentee that the operator can fully recover all investments.
    (B) Increase the government's take early in the life of the field.
    (C) Provide financial incentive for the operator to invest in the leased area knowing that there is a means of recovering some or all of his costs.
    (D) Provides the government with a safety cushion in the event that there are no producible hydrocarbons in the leased area.


11. (70) Most well drilling cost is
    (A) Intangible costs
    (B) Tangible costs


12. (60) Work committment within a PSC for a new exploratory lease is usually a requirement of the government in terms of:
    (A) Field development
    (B) Construction of logistics base
    (C) Drilling a minimum number of exploratory wells
    (D) Running seismic
    (E) May include C and D.


13. (90) Cost oil typically includes:
    (A) Operating costs, intangible capital costs, DD and A, unrecovered costs carried forward.
    (B) Royalties and all of (A)
    (C) Operating costs, tangible capital costs, and DD+A.


14. (30) Intangible drilling costs and development costs include:
    (A) Rentals of milling tools
    (B) Metering equipment
    (C) Well head equipment
    (D)


15. (50) Royalty charges which allow for transportation costs to be subtracted is called a:
    (A) Charge back
    (B) net back
    (C) export tariff


16. (140) Ownership of production in a service contract is:
    (A) Used to pay back costs.
    (B) Retained by the Government.
    (C) part of negotiations.






Correct Answers

1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16,

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1. (10) The Force Majeure clause in a contract is:
Answer: (D) A clause in a contract, specifying that civil war, riots, earthquakes or other drastic events (called acts of God), that could not have been anticipated and outside the control of the Operator make fulfillment of contract obligations impossible and thus, relieves the Operator of liabilty.
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2. (170) The disadvantage of a high royalty percentage in a production sharing contract is:
Answer: (D) All of the above
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3. (100) There is a difference between a production sharing contract (PSC) and a risk service contract RSC contracts in that
Answer: (A) under a risk service contract (RSC) a contractor has no interest in production unless paid in kind or has a preferential right to purchase.
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4. (110) Frequently, signature bonuses are:
Answer: (C) subject to negotiations.
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5. (40) Evaluation of the sale of lease is compared with the holding the lease. There are investments needed in the future which may exceed cash flow. Cash flows are discounted by an assumed interest rate i, in evaluating the property. Increasing the interest rate
Answer: (B) can increase or reduce the present value of the property.
Explanation: If net cash flow is negative early in the life of the field, then the larger interest rate would discount these, and the present value can go down.
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6. (20) The difference between investment credits and uplift in a PSC is:
Answer: (C) Uplift applies to all capital costs while investments credits apply only to investment costs, such as platforms, pipeline and processing equipment.
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7. (130) Profit oil splits (gov't/contractor) generally decline as production or cumulative production increases in a discrete stepwise manner.
Answer: (B) False
Explanation: Just the opposite. Gov't wants a bigger piece of the pie.
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8. (80) Under a PSA, is it possible that the NPV of the equity oil to the Operator goes down with an increase in oil prices?
Answer: (B) Yes, it can happen even without a price cap.
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9. (150) Royalty is collected on the profit oil fraction.
Answer: (B) False
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10. (160) The intent of cost oil recovery is to:
Answer: (C) Provide financial incentive for the operator to invest in the leased area knowing that there is a means of recovering some or all of his costs.
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11. (70) Most well drilling cost is
Answer: (A) Intangible costs
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12. (60) Work committment within a PSC for a new exploratory lease is usually a requirement of the government in terms of:
Answer: (E) May include C and D.
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13. (90) Cost oil typically includes:
Answer: (A) Operating costs, intangible capital costs, DD and A, unrecovered costs carried forward.
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14. (30) Intangible drilling costs and development costs include:
Answer: (A) Rentals of milling tools
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15. (50) Royalty charges which allow for transportation costs to be subtracted is called a:
Answer: (A) Charge back
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16. (140) Ownership of production in a service contract is:
Answer: (B) Retained by the Government.
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