Exam 2010

Question 1.1: Describe how a working interest work.

A working interest or participating interest is when an interest
where the part contribute to the interest with work. Because of the
high risks in the petroleum industry, the companies try to take a
percentage in different interests to spread out the risks. So one
reservoir may have several companies, with different percentages of
the interest. They sign a Joint Venture Agreement, contributes with a
amount of work equal to the percentage they hold, participate in the
daily matters of the interest, receive revenue, and pays tax to the
government.
Question 1.2: Describe how a royalty works.
If one holds a royalty to an interest/reservoir they receive a
certain percentage of the gross revenue or well head value. They
do not take part in the daily matters of the interest and do not sign
the Joint Venture Agreement.
Question 1.3: Describe how a net profits interest work.
A partner that has a net profit interest will not sign the Joint
Venture agreement, and will not take part in the daily matters of
carrying out the interest, but will collect a certain percentage of the
net profits. This might be because of prior rights to the reserve, as a
government collecting tax.
Question 1.4: Describe how a carried interest works.
In a carried interest an outside company will pay or carry
the cost of a specified amount of work for a general partner. In
return the outside company will get a percentage in the working
interest, sign the Joint Venture Agreement, continue their
involvement, and commit to future work.
Question 1.5 What would be worth more, a 10% royalty or a 10%
working interest?
A 10% royalty would be worth more than the 10% working
interest. With a 10% royalty one would get 10% of the total value of
the oil and gas without paying any of the expenses. With a working
interest you have to pay your part of the expenses as well as you
have to spend time on it.
Ex. Oil worth 100$, but has a total cost of 60$ to get to the marked.
10% royalty will get 10$, while 10% working interest will get 10$6$=4$.

Question 1.6 Define and Describe the following:

Oil in Place: Total amount of oil in the reservoir.
Proven reserves: There is a 90% probability that the amount
(the proven reserve) or more will be commercially extracted.
Proven plus probable reserves: There is a 50% probability
that the amount (the proven plus probable reserve) or more will be
commercially extracted.
Proven plus probable plus possible reserves: There is a
10% probability that the amount (the proven plus probable plus
possible reserve) or more will be commercially extracted.
Contingent reserves: Contingent reserves are reserves that
are not, at the given time, looked at as commercial, but with the
prospect that they will be in the future. Often related to not a
current viable market, or the technology required is not fully
developed.
Resources: The resources in the petroleum industry are
normally focused around the hydrocarbons located in the earths
crust. The undiscovered and the discovered ones. A commercial
resource may be called a reserve.
Question 1.7: Give two reasons why a company might farmin to an
exploration permit rather than pay cash.
1, They gain experience within their company and they might
have the competence and equipment necessary, so it will be
cheaper.
2, They can control the quality of the work done.
Question 1.8: What is a farmin premium?
A farmin premium is the price of entry into an interest. The
amount of extra cost over the amount of the working interest they
receive.
Question 1.9: See paper.

Question 2.1: Why do oil and gas companies form joint ventures to
explore for petroleum?
When starting to look for petroleum resources the costs and
risks are severe. They are costs are so high that many of the small
companies are not able to handle them by themselves, and the risks
are so large that even the biggest companies often want to spread
out their risks on several projects. They then sign a joint venture
agreement. An agreement between the companies on how the work

should be carried forward, who owns what percentage, operator,

budget ++.
Question 2.2: Why is petroleum joint venture different from a
partnership? Why is this difference important?
A partnership is the relation which exist between persons
(persons, companies) carrying on a business in common with the
view of profits.
And the major difference with a joint venture agreement is that in a
joint venture the agreement is not with a view of profits. It is with a
view of producing a product and nothing of selling it. The oil is
distributed among the companies and that is end of the joint
ventures reach.
It is important because in a partnership the partners a agents for
each other. Everyone is legally bonded by the actions of one of the
others. They are responsible for each others dept., and has to file a
partnership tax.
In the petroleum industry the consequences with an accident or
mistake are severe. With big accidents, smaller companies would
often not be able to pay for themselves, and the costs are so big
that the bigger companies never will take the risk of other then their
own part. They want to do their own taxes and they dont want to be
liable for the actions of the other companies.
Question 2.3: Discuss the take or pay concept in a long term gas
sales contract. Your answer should include an explanation of the
methods used for arriving at the take or pay quantity.
Annual Contract Quantity: The amount buyer has agreed to
buy per year.
Adjusted Annual Contract Quantity: The minimum amount of
gas, because of buyers or sellers force majeure.
Carry forward gas: Gas taken and paid for by the buyer in
excess to the ACQ.
Make up gas: The amount of gas paid for but not taken by the
buyer. Often maximum AACQ.
Take or Pay: An agreement where the buyer is obligated to
take or pay for a % of the AACQ minus the Carry forward Gas. Often
around 80%
Question 2.4: What are the two principal systems used by
governments to regulate their oil and gas industries? Describe the
major differences between the two.
Concessionary regimes: Rights to the block granted to the
holder. Government take royalty and different taxes from the
company.

Production Sharing Contract: Government owns the

petroleum, but contractor is entitled to a share. First a royalty, then
the contractor has a cost recovery sum, often with a ceiling. The
remaining profit oil is shared (40/60) and the company has to pay
income tax. It is an agreement between the state and the company
to ensure the state more control and a bigger part. They can benefit
from the use of local employment, technology transfer and more.
Question 2.5: Describe the concepts cost oil and profit oil when
used in a production sharing contract . In your answer briefly
describe the ways in which the profit oil might be split as between
the contractor parties on the one hand and the government on the
other.
Cost oil refers to the amount of oil produced that can be
used to cover previous expenses on the reserve. It often has a
ceiling/maximum value. Profit oil is the remaining oil after cost oil
is subtracted and is what is split between the contractors and the
government. It is also viable for tax. 60/40

Question 3.1 Briefly describe and set out the advantages and
disadvantages of the following energy supply technologies.
a. Solar photovoltaic cells: Solar cells that takes energy from
solar radiation and turns it in to electricity.
a. Advantages
i. Low CO2 outlet when first assembled.
ii. Can produce in remote places, space-desert
iii. Produce very quietly
iv. Small local installations possible
b. Disadvantages
i. Not effective enough yet.
ii. Expensive to produce
iii. Can only produce during day and Weather
dependent
iv. Need to transport energy.
b. Concentrated solar thermal stations. Systems using panels
that absorbes energy from the sun and heat up water.
Commercial use or to create electricity.
a. Advantages
i. Sustainable: Low Co2 outlet
ii. Relatively efficient. Low, medium or high for
different uses
iii. Can warm up water for use or create electricity.
b. Disadvantages
i. Need constant sun light and is weather
dependent

c.

d.

e.

f.
g.

ii. Need larger instalations

iii. Less efficient with higher latitudes.
Nuclear Energy. Uses radioactive elements and shoots
neutrons on them, something that makes the nuclei split
and release a lot of energy.
a. Advantages
i. Low greenhouse gas emission
ii. Very efficient
iii. Great capacity
b. Disadvantages
i. Limited amount of resources
ii. Great consequences with accidents
iii. Waste problem
Coal fired electricity generation: Using coal to burn heat
water to steam, through a generator and produce
electricity.
a. Advantages
i. Cheap
ii. Great capacity
iii. Easy to transport
iv. Technology available now.
b. Disadvantages
i. Dirtiest fossil fuel: Great CO2 outlet
ii. Bad mining industry
iii. Reduce air quality
Natural gas: Burn natural gas to turn mechanical energy
into electricity.
a. Ad:
i. A lot more clean than coal
ii. Lot of resources available
iii. Easily transported
b. Dis
i. CO2 outlet
Wind power: Big turbins. Need constant wind. Are big and
look ugly, need to transport energy, clean
Wave: Do not look to good, limited to places with a lot of
waves, need to transport energy

Question 3.2: What is carbon capture storage? Describe how it

works.
Capturing CO2 at its source and transport it to a secure and
permanent geological storage site.
The CO2 can be separated by different techniques, as Solvent
absorption and gas separation membranes.
Question 3.3: What is the advantages and disadvantages of CSS?
Advantages:
Generation relies on low cost coal and natural gas

Low emissions
Constant power generation
Disadvantages
High capture cost
Potential risk of increasing fuel prices
Potential risk of leak
Question 3.4: What does the term CO2 avoided mean?
You have a level of CO2 emitted without CCS. And CO2
avoided= less CO2 emitted with CSS.
Question 4.1: Name three main reasons why accounts are prepared
by an oil and gas company?
1. Measure of companys performance
2. Report to lending bodies
3. Report to shareholders
Question 4.2 What are the three main statements included in the
Annual Report to shareholders containing financial data on the
companys performance during the year?
1. Statement of Financial Position
2. Statement of Comprehensive Income
3. Statement of Cash Flows
Question 4.3: What information would you expect to see in each of
one those main statements and what would that represent?
1. Statement of Financial Position (Balance Sheet)
a. What does the company own and owe
2. Statement of Comprehensive Income (Profit and loss)
a. What did the company earn and what expenses did it
have
3. Statement of Cash Flows (Cash Flow)
a. Where is the money coming from and going to?
Question 4.4: Which persons are responsible for the preparation of
the accounts and what legal liability to shareholders and the public
do they have to ensure the completeness and accuracy of those
accounts?
Question 4.5: What is the role of the Auditor and what responsibility
does that person have to the shareholders and investing public?
Question 4.6: What is the role of the companys secretary and what
responsibility does that person have to the shareholders and the
investing public?

Question 4.7: Where would you expect to obtain copies of the

Annual Reports of a company? On the companys website. All the
shareholders.
Exam 2008
1.1
1.2
1.3

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