PEEG 460

Sample Quiz 1

February 13th, 2023

Due by Thursday February 16th, 2023

Open Book (30 min)

Mohamed Alhosani (ID:100059360)

Maitha Alhajri (ID:100058827)

1. Define the Final phase in the typical exploration and production cycle of oil/gas venture,
why is this stage essential and explain the variation of cost in both onshore and offshore?

The final phase is the abandonment. The abandonment stage in the oil and gas industry is
essential because it involves the safe and environmentally responsible removal of all production
facilities and equipment from the production operation drilling site once the well(s) has reached
the end of its/their productive life. This stage is critical to minimize the environmental impact on
the surrounding area and prevent any potential hazards to human health or marine life. In general,
offshore abandonment is more expensive than onshore abandonment due to the more complex
and challenging nature of the offshore environment. Offshore wells require specialized equipment
and vessels to remove the facilities, which can be significantly more costly than the equipment
needed forin onshore abandonmentoperations. Onshore abandonment, on the other hand, is
typically less expensive as the well is usually located on land, and there is easier access to the
site. The cost of onshore abandonment, although cheaper than offshore, can also vary depending
on the location, the size of the well, and the type of equipment required.

2. Outline major differences between microeconomics and macroeconomics

Microeconomics and macroeconomics are two different branches of economics that study different
aspects of the economy. Here are the major differences between the two:
  Microeconomics focuses on the behavior of individuals and firms in the economy, while
macroeconomics focuses on the economy as a whole.

 Microeconomics analyzes the decision-making behavior of individual consumers,

producers, and firms in the market, while macroeconomics examines the performance of
the entire economy, including its overall production, employment, inflation, and
international trade.
 Microeconomics focuses on the study of specific economic variables such as price, supply
and demand, and the behavior of individual markets, while macroeconomics considers
broader variables such as national income, inflation, and unemployment.
 Microeconomics is generally concerned with short-term decisions, while macroeconomics
is more focused on long-term economic growth and stability.

3. The production limit where total revenue is equal to or less than the net operational
expenses of sustaining such production rate is known as what? Explain some of the factors
that influence this?

The break-even poin

Some factors are:

 customer sales: When there is an increase in customer sales, it means that there is higher
demand. A company then needs to produce more of its products to meet this new demand
which, in turn, raises the BEP (Earlier beak even) in order to cover the extra expenses.

 production costs: The hard part of running a business is when customer sales or product
demand remains the same while the price of variable costs increases, such as the price of
raw materials. When that happens, the BEP also goes up because of the additional
expense. Aside from production costs, other costs that may increase include rent for a
warehouse, increases in salaries for employees, or higher utility rates.
 Equipment repair: In cases where the production line falters, or a part of the assembly line
breaks down, the BEP increases since the target number of units is not produced within
the desired time frame. Equipment failures also mean higher operational costs and,
therefore, a higher break-even.
 Rewrite completely

4. Define cash flow and what are the important parameters that go into it?

Cash flow is the movement of money into and out of a business over a predetermined time
frame, usually a month or a year. It serves as a gauge of a business's capacity for cash flow and
timely bill payment. A company has positive cash flow when there is more money coming in than
going out, and negative cash flow when there is more money leaving than coming in.

There are several important parameters that go into it which are:

1. Operating activities: These are the core activities of the business, such as selling products or
services, and involve cash inflows and outflows related to day-to-day operations.
2. Investing activities: These activities involve cash inflows and outflows related to the purchase or
sale of long-term assets, such as property, plant, and equipment.
3. Financing activities: These activities involve cash inflows and outflows related to the
financing of the business, such as borrowing or repaying loans, issuing or buying back
stocks, or paying dividends. V. Good

5. Attempt to differentiate between fixed operating cost and variable operating cost? Give
three (3) examples of fixed operating costs and variable operating costs?

 Fixed operating costs are expenses that remain constant regardless of changes in the level of
production or sales. They are expenses that the company must pay irrespective of the volume
of goods produced. Examples of fixed operating costs include rent, salaries, insurance,
property taxes, and loan payments.
 Variable operating costs are expenses that fluctuate with changes in production or sales
volume. They are costs that vary with the level of output, such as direct labor, raw materials,
commission. V. Good

6. Attempt to differentiate between constant percentage decline curve and hyperbolic decline
curve methods?

Both constant percentage decline curve and hyperbolic decline curve analysis are methods used
to estimate the production decline in oil and gas wells over time.
  Constant percentage decline curve method assumes that the production rate of a well
declines at a constant rate, usually expressed as a percentage per year.
 The decline rate is assumed to be constant over the entire production life of the well.
This method is popular because it is easy to apply and can be used to wells with a
history of production that has been relatively consistent. However, it is less accurate.
 On the other hand, the hyperbolic decline curve method posits capture that athe behavior
of well's production rate as it declines along a hyperbolic curve. The rate of decline
initially slows down, , but eventually the decline rate increases as the well's production
continues to decline. For wells with more complicated production histories, this method is
more adaptable and precise than the constant decline curve method.

7. On the graph denote (profit, PV profit, revenue, Payout, abandonment, operating cash
income)
V. Good
 8. Net cash flow before income tax (NCFBIT) and taxable income are the same? (True /
False)
V. Good
9. Outline five (5) negative cash flow components in a typical E&P Cash flow process?

 Exploration costs
 Declining production
 Volatility in commodity prices
 High debt levels
 Regulatory costs
V. Good

10. What are the three most common methods to evaluate hyperbolic exponent b and why is it
more representative over exponential?

The three most common methods are the graphical method, the algebraic method, and the numerical
method.

The hyperbolic exponent b is more representative than the exponential exponent because it is a
more versatile parameter that can model a wider range of functions and phenomena. In contrast,
the exponential function is limited to describing simple growth or decay patterns that do not
exhibit the complex behavior of many real-world systems

V. Good

11. What is overhead cost? Give four (4) examples

Overhead costs are those that are not directly related to the production of goods or services, but
are necessary for the operation of a business. Examples of overhead costs include rent, utilities,
insurance, legal fees, office supplies.

12. What is indirect operating cost? Give four (4) examples

Indirect costs include a company's operating expenses (also called selling, general and
administration expenses), and are usually closely managed by business owners. They do not
 fluctuate directly with manufacturing or purchase volumes so they are typically described as fixed
or semi-variable in nature.Indirect costs include supplies, utilities, office equipment rental,
desktop computers and cell phones

V. Good

13. Pipeline tariffs payable is what type of cost? (direct or Indirect)

Direct V. Good

14. Taxable income is implemented in your net cash flow as of generating gross revenue
(True or false) and why?

True No
Taxable Income is taken as base for generating gross revenue . Taxable Income is taken from
profit and loss account. From this base adjustments are made for non cash items like depreciation,
amortization, etc and then working capital movement is adjusted.Taxable income is as of
NCFBIT

Use the given equation to answer the next questions. Generate your data from the graph.
 15. Figure Below shows a rate-time plot of
actual oil production for years 1997 through 2020 and the forecasted oil production
thereafter

Oil Production (Bbl/Month)

100,000.00

27,000.00 19,789.63
22,473.45 19,906.98 18,414.36 22,080.36
18,818.97 20,614.20 18,029.70
16,186.16
15,247.36
21,361.86
19,611.29 22,810.29
24,165.00 19,809.44
10,000.00 13,400.91
18,918.88
19,327.17 18,513.49 19,383.53 21,023.30
14,332.52
17,128.21

1,000.00

100.00
1997 2002 2007 2012 2017

Calculate:

(a) Calculate the El of oil

q i−q o 14332.52−13400.91
d= = =0.0649
qi 14332.52
a=−ln ( 1−d )=−ln ( 1−0.06499 )=0.067

−at
q ot =qi e

5407.77 bbl
q ot =27000 e−0.067 (24 )= =180.26 bbl/day
month
(b) Cumulative oil production from 1/1/1997
to economic limit identified Bbls/month

qi−qo 27000−13400.91
∆ N p= = =202971.5 bbl/day
a 0.067

(c) Production rate at the beginning 2022

q ot =qi e−at =27000 e−0.067 (24 )=5407.77 bbl/month

Good Luck