Erp Practice Exam2-2014

Energy Risk Professional
(ERP®) Examination
Practice Quiz 1: Hydrocarbon Resources
Energy Risk Professional Examination (ERP®) Practice Quiz 1
TABLE OF CONTENTS
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ERP Practice Quiz 1 Candidate Answer Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ERP Practice Quiz 1 Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
ERP Practice Quiz 1 Answer Sheet/Answers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
ERP Practice Quiz 1 Explanations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
© 2012 Global Association of Risk Professionals. All rights reserved. It is illegal to reproduce this material i
in any format without prior written approval of GARP, Global Association of Risk Professionals, Inc.
Introduction Suggested Use of Practice Quizzes

The ERP Practice Quizzes were developed for use in con- To maximize the eﬀectiveness of the practice quizzes,
junction with the ERP Exam Preparation Handbook. The candidates are encouraged to do the following:
Practice Quizzes are designed to simulate both the style and
range of questions found on the ERP Examination, helping 1. Complete ERP Core Readings prior to taking each
ERP Candidates gauge their level of preparedness to take Practice Quiz.
the ERP Examination. Each Practice Quiz includes a series Questions are derived speciﬁcally from Core Readings
of ten review questions drawn from specific sections of the and represent a small sampling of the content covered
ERP Examination: Hydrocarbons, Electricity/Renewables, in the Core Readings that proceed each scheduled quiz.
Financial Products, and Modeling/Risk Management tech-
niques. The Practice Quizzes provide candidates with a tool 2. Simulate the test environment as closely as possible.
to review and test their comprehension of key concepts as • Take the practice quiz in a quiet place.
they work through the study plans outlined in the Exam • Have only the practice quiz, candidate answer sheet,
Preparation Handbook. calculator (see the ERP Preparation Handbook for a
listing of GARP-approved calculators), and writing
It is strongly suggested that Practice Quizzes be taken after instruments (pencils, erasers) available.
a candidate completes their review of the core readings pre- • Minimize possible distractions from other people, cell
ceding each quiz (please see the 15- and 20-week reading phones, televisions, etc.; put away any study material
plans outlined in the ERP Exam Preparation Handbook for before beginning the practice exam.
more information). Practice Quizzes include explanations of • Allocate two minutes per question for the practice quiz
the correct answer for each question so that candidates can and set an alarm to alert you when a total of 20
better understand their incorrect replies and identify areas minutes have passed.
of weakness that need reinforcement.
3. After completing each ERP Practice Quiz
• Calculate your score by comparing your answer
sheet with the practice exam answer key.
• Use the practice quiz Answers and Explanations to
better understand the correct and incorrect answers
and to identify any topics that require additional
review. Consult the referenced core readings to
continue your preparation for the exam.
© 2012 Global Association of Risk Professionals. All rights reserved. It is illegal to reproduce this material 1
Energy Risk
®
Professional(ERP )
Examination
Practice Quiz 1
Answer Sheet
a. b. c. d.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Correct way to complete
1.
Wrong way to complete
1. ✓ ✘
Energy Risk
®
Professional(ERP )
Examination
Practice Quiz 1
Questions
1. Why would a heavy crude oil, like Mexico’s Mayan, sell at a discount compared to a lighter crude, like
Nigerian Light?
a. There is a larger supply of Mayan on the market than there is of Nigerian Light.
b. Heavy crudes like Mayan cannot be processed by every refinery.
c. Heavy crudes like Mayan are more difficult to transport.
d. Nigeria is an OPEC member and Mexico is not.
2. You have been put in charge of developing a new LNG export terminal. The natural gas reserve being exploited
contains an especially high volume of condensates and other liquid petroleum gases (LPGs). How will the
presence of these LPGs affect your LNG project’s revenue stream?
a. The condensates/LPGs are pollutants that must be removed and will thus negatively affect your LNG
terminal’s profit margin.
b. While potentially valuable, the LPGs must be developed as a separate project and thus have no effect on
the profitability of your LNG terminal.
c. The LPGs can be captured and exported, but will always be only a minor profit stream when compared to
the LNG exports.
d. In a situation like the one described, export of LPGs could likely account for a larger part of the terminal’s
profit stream than will sales of LNG.
3. What statement about hydrocarbon reserves is correct?
a. The term reserves refers to a geological concept.

b. Reserves are defined as the total volume of hydrocarbons that are present in an oil or gas field, regardless
of whether or not they can be extracted profitably.
c. Reserves are defined as identified deposits that can be extracted profitably using present-day techniques
and under present economic conditions.
d. The terms resources and reserves are used interchangeably (in common usage they have the same
definition).
4. Once an oil or gas field begins operation, a production profile graph like the example pictured below is usually
generated to forecast the amount of gas/oil the field will produce. How will the shape of the production profile
change if a new technology is implemented after the point of peak production has been reached?
Production Profile
4500000
4000000
3500000
bbI/year
3000000
2500000
2000000
1500000
1000000
500000
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41
Years
a. It will produce a higher production peak.

b. It will produce a broad production plateau before declining.
c. It will produce a second shorter peak after production decline has already begun.
d. It will always extend the economic life of the field.
5. What factor keeps the price of energy futures contracts and physical commodities closely linked?
a. Futures contracts are fully liquid

b. Futures contracts have transparent pricing
c. Futures contracts are exchange-traded
d. Futures contracts require physical delivery at contract expiration
6. A crude oil sample with a sulfur content of 1.6% will be classified as what?
a. Sweet crude
b. Light crude
c. Sour crude
d. Heavy crude
6 © 2012 Global Association of Risk Professionals. All rights reserved. It is illegal to reproduce this material
7. An integrated petroleum company has confirmed discovery of a small to medium sized natural gas field in
the Indian Ocean, 200 miles off the coast of Australia and far from any of the company’s existing natural gas
processing infrastructure. Given the size and location of the reserve relative to their existing operations, what
should the company do to maximize the economic value of the gas field?
a. Construct an LNG plant onshore and an undersea pipeline to the field.

b. Use hydrofracking technology to increase the gas yield.
c. Build a floating liquefied natural gas facility that can be moved to a new site once the field is exploited.
d. Relinquish development rights to the field since, given its size, the capital costs required to develop the
extraction and transportation infrastructure for the site may not be recovered.
8. The Barrel of Oil Equivalent (BOE) is a metric used to compare what?
a. The volume of energy contained in crude oil relative to natural gas

b. Crude oil samples collected from different reservoirs
c. Different kinds of distillates produced at a refinery
d. Historical price trends in the petroleum industry
9. Which natural gas storage option has the lowest associated operating costs?
a. Aquifers
b. Depleted gas or oil fields
c. Salt caverns
d. Spherical above-ground tanks
10. If an oil field is said to have a P90 of 500 Mbbls, which of the following is correct?
a. There is a 90% chance the true reserves of the field will exceed 500 Mbbls
b. There is a 90% chance the true reserves of the field will be less than 500 Mbbls
c. There is a 90% chance the true resources of the field will exceed 500 Mbbls
d. There is a 90% chance the true resources of the field will be less than 500 Mbbls
Energy Risk
®
Professional(ERP )
Examination
Practice Quiz 1
Answers
a. b. c. d.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Correct way to complete
1.
Wrong way to complete
1. ✓ ✘
Energy Risk
®
Professional(ERP )
Examination
Practice Quiz 1
Explanations
1. Why would a heavy crude oil, like Mexico’s Mayan, sell at a discount compared to a lighter crude, like
Nigerian Light?
a. There is a larger supply of Mayan on the market than there is of Nigerian Light.
b. Heavy crudes like Mayan cannot be processed by every refinery.
c. Heavy crudes like Mayan are more difficult to transport.
d. Nigeria is an OPEC member and Mexico is not.
Correct answer: b
Explanation: Heavy crudes need specialized equipment, like a coker, for processing; this equipment is not
installed at every refinery, therefore heavy crudes typically sell at a discount to lighter crudes, making “b” the
correct answer. Note: while Nigeria is a member of OPEC, this does not factor into the premium/discount
rationale in this scenario.
Reading reference: Petroleum Refining in Nontechnical Language, 3th Edition, Leffler, Chapter 20, pages 198-201.
2. You have been put in charge of developing a new LNG export terminal. The natural gas reserve being exploited
contains an especially high volume of condensates and other liquid petroleum gases (LPGs). How will the
presence of these LPGs affect your LNG project’s revenue stream?
a. The condensates/LPGs are pollutants that must be removed and will thus negatively affect your LNG
terminal’s profit margin.
b. While potentially valuable, the LPGs must be developed as a separate project and thus have no effect on
the profitability of your LNG terminal.
c. The LPGs can be captured and exported, but will always be only a minor profit stream when compared to
the LNG exports.
d. In a situation like the one described, export of LPGs could likely account for a larger part of the terminal’s
profit stream than will sales of LNG.
Correct answer: d
Explanation: LPGs can provide a second revenue stream for an LNG project. In the case of a field that is
particularly rich in LPGs, the LPG sales can be the primary motivation for the development of the field (for
example LNG projects in Qatar and Australia); since that is the case presented here, “d” is the correct answer.
This situation is currently being seen in some shale gas projects in the United States, where LPG sales are
driving the production from natural gas reservoirs, even though the natural gas market is currently saturated.
Reading reference: Fundamentals of Natural Gas, Chandra, Chapter 2, page 53.
3. What statement about hydrocarbon reserves is correct?
a. The term reserves refers to a geological concept.

b. Reserves are defined as the total volume of hydrocarbons that are present in an oil or gas field, regardless
of whether or not they can be extracted profitably.
c. Reserves are defined as identified deposits that can be extracted profitably using present-day techniques
and under present economic conditions.
d. The terms resources and reserves are used interchangeably (in common usage they have the same
definition).
Correct answer: c
Explanation: Answer “c” is the correct definition of the term “reserves.” Answer “a” is incorrect, reserves are
a techno-economic term, not a geologic one; answer “b” is incorrect, this is the definition of “resources”;
answer “d” is incorrect, reserves and resources are two distinctly different concepts.
Reading reference: Oil, Gas Exploration, and Production: Reserves, Costs, Hydrocarbon Reserves, Institut
Francais du Petrole Publications, Chapter 3, page 99.
4. Once an oil or gas field begins operation, a production profile graph like the example pictured below is usually
generated to forecast the amount of gas/oil the field will produce. How will the shape of the production profile
change if a new technology is implemented after the point of peak production has been reached?
Production Profile
4500000
4000000
3500000
bbI/year
3000000
2500000
2000000
1500000
1000000
500000
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41
Years
a. It will produce a higher production peak.

b. It will produce a broad production plateau before declining.
c. It will produce a second shorter peak after production decline has already begun.
d. It will always extend the economic life of the field.
Correct answer: c
Explanation: Typically, a new technology implemented after the point of peak production will cause a secondary
production peak, making “c” the correct answer. Oil, Gas Exploration and Production: Reserves, Costs,
Contracts cites the Alwyn Field in the North Sea as an example of this secondary peak (page 111).
Technological progress may or may not extend the “tail” of the profile, as reserves may be used up more
quickly by a secondary production peak.
Reading reference: Oil, Gas Exploration and Production: Reserves, Costs, Contracts, Institut Francais du
Petrole Publications, Chapter 3, page 111.
5. What factor keeps the price of energy futures contracts and physical commodities closely linked?
a. Futures contracts are fully liquid

b. Futures contracts have transparent pricing
c. Futures contracts are exchange-traded
d. Futures contracts require physical delivery at contract expiration
Correct answer: d
Explanation: Ultimately a futures contract will require physical delivery of crude oil if the position is not closed
out or a cash settlement paid. This fact keeps the price of future contracts linked to the physical price paid on
the spot market for physical delivery. This, however, is not to say that the two will be precisely correlated or
that there will not be arbitrage opportunities.
Reading reference: The Role of WTI as a Crude Oil Benchmark, Purvin & Gertz, Section 3.
6. A crude oil sample with a sulfur content of 1.6% will be classified as what?
a. Sweet crude
b. Light crude
c. Sour crude
d. Heavy crude
Correct answer: c
Explanation: Crude oil with a sulfur content of more than 1% is typically classified as “sour”, while oil with less
than 0.6% sulfur is considered “sweet.” Since sulfur must be removed in the refining process, sour oils typically
sell at a discount. The terms “light” and “heavy” refer to an oil’s specific gravity, not its sulfur content.
Reading reference: Nontechnical Guide to Petroleum Geology, Exploration, Drilling and Production, Hyne,
Chapter 1, page 4-5.
7. An integrated petroleum company has confirmed discovery of a small to medium sized natural gas field in
the Indian Ocean, 200 miles off the coast of Australia and far from any of the company’s existing natural gas
processing infrastructure. Given the size and location of the reserve relative to their existing operations, what
should the company do to maximize the economic value of the gas field?
a. Construct an LNG plant onshore and an undersea pipeline to the field.

b. Use hydrofracking technology to increase the gas yield.
c. Build a floating liquefied natural gas facility that can be moved to a new site once the field is exploited.
d. Relinquish development rights to the field since, given its size, the capital costs required to develop the
extraction and transportation infrastructure for the site may not be recovered.
Correct answer: c
Explanation: The correct answer is “c.” The best way to exploit this reserve, given its size and location, would
be with an FLNG facility. If the costs of building the FLNG were not recovered by the time the reserve was
exhausted, the FLNG could be relocated.
Reading reference: PriceWaterhouseCoopers. Today’s LNG Market Dynamics.
8. The Barrel of Oil Equivalent (BOE) is a metric used to compare what?
a. The volume of energy contained in crude oil relative to natural gas

b. Crude oil samples collected from different reservoirs
c. Different kinds of distillates produced at a refinery
d. Historical price trends in the petroleum industry
Correct answer: a
Explanation: BOE is a way of comparing the Btu content of a barrel of crude oil with the Btu content of a
volume of natural gas; typically the natural gas amount used for BOE is 6,040 cubic feet, though different
petroleum companies may use a different natural gas volume depending on the composition of the oil and
gas sources being compared.
Reading reference: Nontechnical Guide to Petroleum Geology, Exploration, Drilling and Production, Hyne,
Chapter 1, page 13.
9. Which natural gas storage option has the lowest associated operating costs?
a. Aquifers
b. Depleted gas or oil fields
c. Salt caverns
d. Spherical above-ground tanks
Correct answer: b
Explanation: The correct answer is “b” Pumping natural gas back into a depleted natural gas or oil field
typically has the lowest associated construction and operating costs, in part because the geology of the field
is already known and the equipment for accessing the reserve is already in place from its time as a producing field.
Reading reference: Vivek Chandra. Fundamentals of Natural Gas: An International Perspective, Chapter 2,
pages 70-73.
10. If an oil field is said to have a P90 of 500 Mbbls, which of the following is correct?
a. There is a 90% chance the true reserves of the field will exceed 500 Mbbls
b. There is a 90% chance the true reserves of the field will be less than 500 Mbbls
c. There is a 90% chance the true resources of the field will exceed 500 Mbbls
d. There is a 90% chance the true resources of the field will be less than 500 Mbbls
Correct answer: a
Explanation: In general “Px” is the value where there is an x% probability that the true reserves of a given
field exceed Px. Therefore, if the P90 of an oilfield is 500 Mbbls, then there is a 90% probability that the true
reserves exceed 500 Mbbls, making “a” the correct answer. Since Px values relate to reserves, “c” and “d” are
incorrect by definition.
Reading reference: Oil, Gas Exploration, and Production: Reserves, Costs, Hydrocarbon Reserves, Institut
Francais du Petrole Publications, Chapter 3, p. 101.
Creating a culture of
risk awareness.®
Global Association of
Risk Professionals
111 Town Square Place

Suite 1215
Jersey City, New Jersey 07310
USA
+ 1 201.719.7210
2nd Floor
Bengal Wing
9A Devonshire Square
London, EC2M 4YN
UK
+ 44 (0) 20 7397 9630
www.garp.org
About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated to
preparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 risk manage-
ment practitioners and researchers from banks, investment management firms, government agencies, academic institutions, and
corporations from more than 195 countries and territories. GARP administers the Financial Risk Manager (FRM®) and the Energy
Risk Professional (ERP®) Exams; certifications recognized by risk professionals worldwide. GARP also helps advance the role of risk
management via comprehensive professional education and training for professionals of all levels. www.garp.org.
© 2012 Global Association of Risk Professionals. All rights reserved. 8-21-12

Erp Practice Exam2-2014

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Erp Practice Exam2-2014

Uploaded by

Copyright:

Available Formats

Energy Risk Professional

ERP Practice Quiz 1 Candidate Answer Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

ERP Practice Quiz 1 Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

ERP Practice Quiz 1 Answer Sheet/Answers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

ERP Practice Quiz 1 Explanations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Introduction Suggested Use of Practice Quizzes

Correct way to complete

Wrong way to complete

3. What statement about hydrocarbon reserves is correct?

a. The term reserves refers to a geological concept.

a. It will produce a higher production peak.

a. Futures contracts are fully liquid

a. Construct an LNG plant onshore and an undersea pipeline to the field.

8. The Barrel of Oil Equivalent (BOE) is a metric used to compare what?

a. The volume of energy contained in crude oil relative to natural gas

Correct way to complete

Wrong way to complete

3. What statement about hydrocarbon reserves is correct?

a. The term reserves refers to a geological concept.

a. It will produce a higher production peak.

a. Futures contracts are fully liquid

a. Construct an LNG plant onshore and an undersea pipeline to the field.

8. The Barrel of Oil Equivalent (BOE) is a metric used to compare what?

a. The volume of energy contained in crude oil relative to natural gas

111 Town Square Place

© 2012 Global Association of Risk Professionals. All rights reserved. 8-21-12

You might also like