CMA Due Diligence & Risk Assessment Flashcards
6 cards from real CMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CMA Due Diligence & Risk Assessment flashcards as text
What is 'geologic risk' in the context of mineral appraisal, and how is it typically quantified?
Answer: The uncertainty that a proposed well will find economic quantities of minerals, quantified as a probability of success
Geologic risk is the probability that a proposed well will discover and be able to produce economic quantities of minerals, often expressed as a percent chance of geologic success.
When performing due diligence on coal mineral rights, which surface mining constraint most significantly impacts value?
Answer: Highwall height restrictions and required setbacks from surface features
Surface mining setback requirements from streams, structures, and property lines can render coal reserves unmineable, directly reducing the economically recoverable tonnage and value.
In a minerals due diligence review, what does reviewing 'Joint Interest Billing' (JIB) statements reveal?
Answer: The working interest owner's cost-sharing obligations and whether they are current on their expenses
JIB statements detail the costs billed to each working interest owner for their share of well operations, revealing cost levels, operator efficiency, and whether a WI owner is current on their financial obligations.
What type of risk is introduced when a mineral property's royalty income depends on a single purchaser for commodity off-take?
Answer: Counterparty or concentration risk
When production is sold to a single buyer, the royalty owner is exposed to counterparty risk—if that buyer defaults, fails, or loses pipeline access, the royalty stream is interrupted.
A due diligence review of a hard rock mineral property finds several legacy mine adits and waste piles. What specific liability does this create?
Answer: Potential CERCLA liability for hazardous waste cleanup under federal Superfund law
Legacy mining waste piles and adits may contain acid mine drainage and heavy metals classified as hazardous substances under CERCLA, creating strict liability cleanup obligations for current owners.
In mineral acquisition due diligence, what is the purpose of reviewing 'spacing orders' issued by the state oil and gas regulatory agency?
Answer: To determine the number and location of wells that may be drilled on the leased acreage under state rules
Spacing orders define the regulatory unit size and the maximum number of wells allowed per unit, directly affecting how many drilling locations exist and the development potential of the acreage.