Petroleum Economics – MCQs – Practices Test .com

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1. Petroleum economics primarily deals with:
(A) Drilling mud composition
(B) Financial evaluation of oil & gas projects
(C) Well logging operations
(D) Reservoir porosity measurement

2. The present value of future cash flows is calculated using:
(A) Gross profit
(B) Discounting
(C) Depreciation
(D) Royalty rates

3. NPV stands for:
(A) Net Petroleum Value
(B) Net Present Value
(C) Natural Petroleum Volume
(D) Non-Production Variable

4. A positive NPV indicates that:
(A) The project should be rejected
(B) The project is financially viable
(C) The project has zero profitability
(D) The project has negative cash flow

5. IRR refers to:
(A) Internal Rate of Return
(B) Investment Risk Ratio
(C) International Resource Regulation
(D) Input Return Rate

6. Payback period is defined as:
(A) Time to double investment
(B) Time to recover initial investment
(C) Project’s maximum life span
(D) Duration of production plateau

7. Petroleum royalties are paid to:
(A) Service companies
(B) Governments or landowners
(C) Drilling contractors
(D) Refining companies

8. Which parameter is most affected by oil price fluctuations?
(A) Reservoir pressure
(B) Project cash flows
(C) Rock porosity
(D) Drill bit wear

9. Risk-adjusted discount rate is used to:
(A) Account for geological uncertainty
(B) Increase production rates
(C) Reduce project costs
(D) Measure porosity

10. The economic limit of a well is reached when:
(A) Oil price falls to zero
(B) Operating costs exceed revenues
(C) Reservoir pressure declines
(D) Production rate doubles

11. CAPEX in petroleum projects stands for:
(A) Capital Expenditure
(B) Capital Exploration
(C) Crude Allocation Process
(D) Casing Performance Expectation

12. OPEX refers to:
(A) Operational Experience
(B) Operating Expenditure
(C) Offshore Exploration
(D) Output Expectation

13. Which of the following is a sunk cost?
(A) Future drilling cost
(B) Cost of seismic data already acquired
(C) Abandonment cost
(D) Production facilities maintenance

14. Depreciation is applied to:
(A) Land lease
(B) Capital assets
(C) Crude oil reserves
(D) Royalty payments

15. Break-even oil price is defined as:
(A) Price where profits are maximum
(B) Price where revenues equal costs
(C) Price set by OPEC
(D) Price of refining petroleum

16. The fiscal system of petroleum contracts includes:
(A) Concession agreements
(B) Production sharing contracts
(C) Service contracts
(D) All of the above

17. Which of the following increases project profitability?
(A) Higher discount rate
(B) Lower oil price
(C) Increased reserves
(D) Higher operating costs

18. Salvage value is:
(A) Residual value of an asset at project end
(B) Scrap value of drill bits
(C) Oil price during economic crisis
(D) Cash flow before tax

19. Sensitivity analysis in petroleum economics is used to:
(A) Optimize drilling mud
(B) Evaluate effect of key variables on project outcome
(C) Increase well productivity
(D) Test pipeline leaks

20. Which of the following is NOT a cash inflow?
(A) Oil sales revenue
(B) Gas sales revenue
(C) Tax payment
(D) Salvage value

21. A fiscal regime with higher royalty rates will:
(A) Increase company profits
(B) Decrease company profits
(C) Have no effect on profits
(D) Reduce oil reserves

22. Which factor has the greatest impact on petroleum project economics?
(A) Oil and gas prices
(B) Porosity of rocks
(C) Permeability of shale
(D) Mud rheology

23. The concept of “time value of money” means:
(A) Money today is worth less than money tomorrow
(B) Money today is worth more than money tomorrow
(C) Money has no time dependency
(D) Money is unrelated to interest rates

24. Which is commonly used as a decision-making tool in petroleum economics?
(A) NPV and IRR
(B) Sonic and gamma logs
(C) Drilling mud viscosity
(D) Formation permeability

25. Which type of cost varies directly with production levels?
(A) Fixed cost
(B) Variable cost
(C) Sunk cost
(D) Capital cost

26. In a production sharing contract (PSC), profits are shared between:
(A) Service companies and drilling contractors
(B) Government and operating company
(C) Refiners and consumers
(D) Exporters and importers

27. Inflation affects:
(A) Reservoir pressure
(B) Future project costs and revenues
(C) Oil density
(D) Mud circulation rate

28. Which of the following is a fiscal incentive?
(A) Higher royalty
(B) Lower tax rates
(C) Increased CAPEX
(D) Higher OPEX

29. Abandonment cost is classified as:
(A) Operating expenditure
(B) Capital expenditure
(C) Decommissioning expenditure
(D) Royalty

30. The profitability index (PI) is the ratio of:
(A) NPV to initial investment
(B) Cash flow to royalty
(C) OPEX to CAPEX
(D) Revenue to tax

31. Which discounting method is commonly used in petroleum economics?
(A) Simple interest method
(B) Compound interest method
(C) Straight line method
(D) Linear regression

32. A higher discount rate results in:
(A) Higher NPV
(B) Lower NPV
(C) No change in NPV
(D) Higher salvage value

33. Oil price volatility introduces:
(A) Geological risk
(B) Market risk
(C) Operational risk
(D) Technical risk

34. Which is a measure of investment efficiency?
(A) IRR
(B) Porosity
(C) Resistivity
(D) Mud density

35. Government “take” in petroleum projects includes:
(A) Taxes and royalties
(B) Well logging costs
(C) Drilling mud expenses
(D) Seismic acquisition costs

36. What is the usual decision if IRR is greater than the discount rate?
(A) Reject project
(B) Accept project
(C) Delay project
(D) Reduce costs

37. Which project has higher risk?
(A) Short payback period
(B) Long payback period
(C) Positive NPV
(D) High IRR

38. A dry hole cost is considered as:
(A) Sunk cost
(B) Salvage cost
(C) Operating cost
(D) Abandonment cost

39. Discounted cash flow (DCF) analysis is mainly used to:
(A) Estimate reservoir porosity
(B) Evaluate project economic viability
(C) Reduce drilling costs
(D) Calculate mud viscosity

40. Which is NOT a petroleum economic evaluation criterion?
(A) NPV
(B) IRR
(C) SP log value
(D) Payback period

41. Government participation in petroleum projects is usually through:
(A) Service contracts
(B) Equity share
(C) PSCs
(D) All of the above

42. Which is a non-cash cost?
(A) Royalty
(B) Depreciation
(C) Tax
(D) Operating cost

43. A higher recovery factor improves:
(A) NPV
(B) Porosity
(C) Drilling cost
(D) OPEX

44. Monte Carlo simulation in petroleum economics is used for:
(A) Risk and uncertainty analysis
(B) Production logging
(C) Reservoir pressure testing
(D) Drilling optimization

45. Which parameter is most critical in marginal fields?
(A) Oil price
(B) Reservoir pressure
(C) Drill bit wear
(D) Mud viscosity

46. Windfall profit tax is imposed when:
(A) Oil price is very low
(B) Oil price is very high
(C) Production ceases
(D) Reservoir pressure drops

47. In petroleum economics, PSC stands for:
(A) Petroleum Service Company
(B) Production Sharing Contract
(C) Project Scope Control
(D) Petroleum Sales Commission

48. Which of the following increases project risk?
(A) Stable oil price
(B) Declining reserves
(C) Lower OPEX
(D) Government incentives

49. Which cost occurs regardless of production levels?
(A) Variable cost
(B) Fixed cost
(C) Royalty
(D) Severance tax

50. The ultimate goal of petroleum economics is to:
(A) Drill more wells
(B) Maximize economic value of hydrocarbon resources
(C) Reduce seismic costs
(D) Improve mud circulation

Petroleum Economics – MCQs

FOUNDATIONAL SUBJECTS (Year 1 – Year 2)

CORE PETROLEUM ENGINEERING SUBJECTS (Year 2 – Year 4)

LABORATORIES & PRACTICALS (Theory-based MCQs can be made from these)

ELECTIVES (Optional/Advanced)