Companies A and B are independent oil and gas producers. Company 1 is one of the largest and most fully developed independent exploration and production (E&P) companies in world. It has operations all over the world including unconventional, deep-sea proj
Company A is Company 2 and Company B is Company 1
Companies C and D are integrated energy companies. Company 1 is one of the largest, most fully developed companies in the world and has been called the best-run oil company in the world by a prominent investment banker. This company has been able to use p
Company C is Company 1 and Company D is Company 2
Companies E and F are small publicly traded E&P companies. "Small Cap" means that they have smaller capitalization (i.e., smaller market value of equity). Company 1 is a Permian basin pure play company based out of Fort Worth, TX. This company focuses on
Company E is Company 2 and Company F is Company 1
Companies G and H are Master Limited Partnerships (MLPs). MLPs have an asset intensive, strategic infrastructure and generally attractive distribution yields. Company 1 focuses on midstream gathering and processing assets as well as interstate pipelines.
Company G is company 2 and Company H is company 1
Companies I and J are oilfield service companies. Company 1 is one of the largest oilfield service companies in the world with operations in over 80 countries. Even though it is already one of the largest service companies in the world, there are talks ab
Company I is Company 1 and Company J is Company 2
Companies K and L are utility companies headquartered in North America. Company 1 has been named to Fortune's list of the "World's Most Admired Companies" for its commitment to sustainability and community responsibility. It is unique among hybrid-generat
Company K is Company 1 and Company L is Company 2
The Bloomberg illustration shows ConocoPhillips and industry peers. Which of the companies shown has the best reserve replacement ratio (not the organic reserve replacement)?
Murphy Oil
The Bloomberg illustration shows ConocoPhillips and industry peers. Which of the companies shown has the best Lifting Cost ratio (5 year average)?
Noble Energy
The Bloomberg illustration shows ConocoPhillips and industry peers. Which of the companies shown has the best Organic Reserve Replacement? This is like the F&D reserve replacement ratio from my lectures.
Murphy Oil
Which of the following is NOT a potential problem or limitation of financial ratio analysis?
Ratios are rigid, black and white measures that always send a clear message to the financial analyst.
Calculate the Lifting Cost Ratio for ConocoPhillips in 2013 in $ per BOE. Exclude equity affiliates. Remember -- this is for 2013.
Based on the industry average of $9.50 per barrel, this value for COP is considered good, average, or below average? _______
13.39; below average
Calculate the value of proven reserve additions for COP in 2014. Exclude equity affiliates. List the answer in $ per barrel.
Reserve Value Ratio = (improved recovery + changes due to revisions + changes due to purchases) / ( Reserve extensions & Discoveri
19.27
Net wells to gross wells is another type of energy ratio discussed in Chapter 9. A high net wells to gross wells ratio indicates which of the following?
This indicates that a company owns relatively large working interests in the overall wells and this is a good positive indicator of future profitability.
Go to the SEC website and download ConocoPhillips 2015 10-K report. Remember that I showed how to do this in the Chapter 9 lecture. Refer back to the PowerPoint slides if you need help.
What was COP's production replacement ratio in 2015 for Total Proven
-87.3%
Go to the SEC website and download ConocoPhillips 2015 10-K report. Remember that I showed how to do this in the Chapter 9 lecture. Refer back to the PowerPoint slides if you need help.
What was COP's reserve life index in 2015 for Total Proven Reserves?
10.7 years
Other things held constant, an increase in the cost of capital discount rate will result in a decrease in a project's IRR.
False
Based on historical data, natural gas prices are more volatile than crude oil prices. This is, natural gas prices have a higher standard deviation than crude oil prices. This statement is:
True
Chesapeake Energy company uses a required return of 12.5% to evaluate most projects of average risk. Suppose the company is looking at a new energy project that is of lower-than-average-risk, and the CEO thinks the discount rate should be risk adjusted. W
Increase NPV
Aaron McIntire Inc., a large alternative energy firm operating out of Valdez, Alaska, has a new energy project it is considering. The project has a cost of $275,000 and is expected to provide after-tax annual cash flows of $73,306 for eight years. The fir
16.0%
Williams Companies Inc is considering a natural gas project which has the following cash flows. The cost of capital is 10%. What is the NPV of the project?
Year Project Cash Flows
0 -$1,000
1 400
2 300
3 500
4 400
$260
Williams is considering the following project and is computing the IRR. The firm has a cost of capital of 10%. What is the IRR for this project?
Year Project Cash Flows
0 -$1,000
1 400
2 300
3 500
4 400
21.22%
Jeff Patterson has a solar panel energy savings project which has the following cash flows:
Year Cash Flow
0 -$245,454
1 100,000
2 100,000
3 150,000
4 40,000
5 25,000
The cost of capital is 10 percent. What is the project's discounted payback period?
2.64 years
In evaluating project risks in the energy industry, which of the risks listed below is considered an "intangible risk", and is not a "tangible risk"?
Weather
Which of the following statements is correct. The three most common distributions used in Monte Carlo Simulation are:
Triangular, uniform, and lognormal
What does "risk" mean in capital budgeting?
Uncertainty about a project's future profitability
Measured by standard deviation of NPV, standard deviation of IRR, beta.
Will taking on the project increase the firm's and stockholders' risk?
(All of the above)
Risk analysis in capital budgeting is usually based on subjective judgments.
True
_________________ is described as follows:
�Shows how changes in a variable such as unit sales affect NPV or IRR.
�Each variable is fixed except one. Change this one variable to see the effect on NPV or IRR.
�Answers "what if" questions, e.g. "What if sal
Sensitivity Analysis
This diagram illustrates a very useful tool for risk analysis in capital budgeting. It is known as a:
Spider Diagram
Which of the following reasons is not a reason as to why sensitivity analysis is useful?
Gives probabilities of various possible outcomes
______________ examines several possible situations, usually worst case, most likely case, and best case and also provides a range of possible outcomes.
Scenario analysis
____________ is a computerized version of scenario analysis which uses continuous probability distributions. Using this technique, the computer selects values for each variable based on given probability distributions.
Monte Carlo Simulation
The project that Williams undertook that I describe in the "Capital Budgeting and Risk Analysis in the Oil and Gas Industry" lecture is:
Devil's Tower
Proven reserves is the lowest reserves number and is the amount that the geologists have the highest level of being sure there is at least this amount of oil in the reserve formation. This is also known as ______________.
[Hint: This question is from my l
P90
Which of the following is not one of the 5 Basic Rules of Thumb in choosing probability distributions?
If you have relevant data, then use it! Then utilize distribution fitting capability of @Risk. Excellent way to take advantage of historical data - if appropriate.
Does the variable you are modeling only assume discrete values? If so, use discrete distrib
Assume that upon receiving your recommendation to accept a new energy project, the CEO says the project is riskier than you've assumed in your analysis and directs you to make adjustments to take into account the perceived increased riskiness. The most lo
Increase the required rate of return
Bewcastle Oil Service Technologies is evaluating a new project that requires $1,200,000 in new equipment. Bewcastle estimates that the new project will generate $1,400,000 in annual sales at the end of each of the next four years and that total operating
1,861,467
Bewcastle Oil Service Technologies is evaluating a new project that requires $1,200,000 in new equipment. Bewcastle estimates that the new project will generate $1,400,000 in annual sales at the end of each of the next four years and that total operating
1,881,966
Cowboy Oil Company (COC): The company has purchased $4,500,000 worth of equipment that required $500,000 in shipping and installation costs. In addition, the firm's accounts receivable and inventories increased by $1,000,000 and its spontaneous liabilitie
2,509,641
Cowboy Oil Company (COC): The company has purchased $4,500,000 worth of equipment that required $500,000 in shipping and installation costs. In addition, the firm's accounts receivable and inventories increased by $1,000,000 and its spontaneous liabilitie
31.6
What does the picture show us?
Flatter distribution, larger standard deviation, larger stand-alone risk.
What are the advantages of simulation analysis?
A) Reflects the probability distributions of each input.
B) Shows range of NPVs, the expected NPV, sNPV, and CVNPV.
C) Gives an intuitive graph of the risk situation.
(A, B, and C)
Which of the following options is a tangible risk?
Financial risk; Insurance risk; Commodity price risk.
Which method is the following sentence talking about to estimate the reserves ?
" The lowest figure, the amount that the geologists are 90% sure is there (sometimes 95% is used which would be P95).
Proved or Proven
In competitive energy markets, mean reversion is a usefule model in which prices are expected to revert towards the long term mean (also used in interest rate modeling).
True
From the diagram below, we can estimate what percentage of the observations (simulation results) occur with a NPV >0?
Around 90% or higher
From the diagram, which of the following we can conclude?
We are about 77% confident that the discounted payback will be less than 2.5 years.
Which population distribution method only needs two parameters-- min and max?
Uniform
This question is from Dana Murphy's presentation on Feb. 22, 2016 (guest speaker that was recorded and video & slides posted to D2L).
Who made the following statement:
"Go the extra mile because there's no traffic jam there.
Roger Staubach
This question is from Dana Murphy's presentation on Feb. 22, 2016 (guest speaker that was recorded and video & slides posted to D2L).
What was her undergraduate degree in and from where?
Geology, OSU
This question is from Dana Murphy's presentation on Feb. 22, 2016 (guest speaker that was recorded and video & slides posted to D2L).
Which oil/gas formation produces the most water in Oklahoma from oil and gas drilling per shale well?
Mississippian
This question is from Dana Murphy's presentation on Feb. 22, 2016 (guest speaker that was recorded and video & slides posted to D2L).
Which formation is of the most concern for earthquakes from oil and gas drilling in Oklahoma?
Arbuckle
This question is from Dana Murphy's presentation on Feb. 22, 2016 (guest speaker that was recorded and video & slides posted to D2L).
Two to five million gallons are needed to frac a shale well, with an average of 4.5 million gallons. Which of the followi
A) 6.75 acres of corn in one season
B) None of the choices given are correct
C) New York City in 6.3 minutes
(All of the choices listed are correct) = Answer
E) A golf course in 22.5 days
How long, on average, did it take for oil prices to recover to pre-collapse levels in the 1997 and 2008 selloffs?
17 months
The current oil price collapse is comparable to the collapses in 2008-09 and in 1997-98 financial crises. What are the two reasons that make the current collapse worse than the previous two?
Higher than expected supply growth and no help from OPEC as a defender of oil price.
Which statement is true regarding the ability of OPEC countries to withstand low oil prices?
Saudi Arabia needs $90-105/Bbl to balance its budget.
Calculate the frac spread and explain how it is an important profitability measure for firms operating in midstream (such as MLPs that operate in fractionation of NGLs). [Hint: This is from my lecture in Unit 6 about MLPs. I also have a worksheet on calcu
2.61
Since 1983, the oil sector has had ___ shocks in which oil prices have dropped by 40% or more.
7
_____ are partnerships that trade on public exchanges or markets and trade in the form of units.
MLPs
What energy deal is the largest in the energy sector since Exxon took over Mobil Oil in 1999?
Kinder Morgan (KMI) acquisition of Kinder Morgan Energy Partners, KM Management LLC and El Paso Pipeline Partners.
Which of the internal strategies have energy firms used in an industry downturn?
A) Capital expenditure cuts
B) Seek debt covenant relief
C) Reduce SG&A (salaries, general, and administrative) costs
D) M&A
(A and C are correct)
Geographically, petroleum-related M&A is concentrated mostly in what country?
United States
A larger size and more diverse business will not help energy firms move into higher credit rating categories.
False
In Chapter 7 of the text book (How Our Political Views Affect Our View of Energy Prices), survey participants were asked to identify the factors influencing energy pricing. Which of the following choices best explains any misperceptions the poll paricipan
These poll participants had it exactly backwards. Supply and demand are the most important determinants of energy prices but the poll participants thought the most important factors were first, the pricing power of energy companies and/or electric utiliti
In Chapter 7 of the text book (How Our Political Views Affect Our View of Energy Prices), survey participants were asked to identify the factors influencing energy pricing. Which of the following choices best explains any misperceptions the poll participa
Democrats and Republicans are equally misinformed, but misinformed in very different ways. Democrats tend to believe that the pricing power of energy firms has the most important impact on energy prices while Republicans tend to believe that regulation ha
In Chapter 7 of the text book (How Our Political Views Affect Our View of Energy Prices), survey participants were asked to identify the factors influencing energy pricing. Does the following statement correctly summarize the author's (Sheridan Titman) co
Yes, this statement summarizes the author's opinion.
Which of the following statements is true about the frac spread and natural gas processors?
Some natural gas processors have contracts called "keep-whole contracts". The frac spread most affects these natural gas processors, with higher frac spreads predictive of higher margins and lower frac spreads predictive of lower margins.
What part of the value chain performed best from the spin-offs by ConocoPhillips, Williams, and Marathon?
Midstream and Downstream
Which of the following are advantages of MLPs?
A) Due to lack of corporate level income tax, MLPs generally have a lower cost of capital than corporations, which makes MLPs more competitive in the acquisition marketplace.
B) The sponsor often can defer significant amounts of taxation upon formation of
The cost of reserves acquisition for the entire period of 2010-2014 was higher than the cost to find and develop reserves.
False
Why would a company NOT choose the MLP structure?
The company is unable to provide steady cash flows.
_________ are a share of the cash distribution paid by the MLP partnership, which gradually increases as the partnership increases the cash distributions.
Incentive distribution rights