Questions and Answers of Fundamentals Of Oil And Gas Accounting

District office expenses were $48,000 for July 2018. The district office supervised the following leases:a. Record lease operating expense, assuming allocation based on the number of wells.b. Record
Kyle Company’s production from each well on Lease C and Lease D is estimated based on a 24-hour test. Oil produced from each well on each lease is commingled and measured before leaving each lease.
The following reserve table appeared in the financial statements of Lomax Company:REQUIRED: Compute the following ratios for all three years:a. The reserve replacement ratio computed for all three
Big Tree Petroleum incurs G&G costs of $21,000 for Project Area 12.Three areas of interest are identified. Detailed G&G is conducted on the areas of interest at the following costs:As a
Coyote Oil Company incurred intangible costs during 20XA related to the following:a. Assuming Coyote is an independent producer, how much IDC can it deduct for 20XA?b. How much IDC could Coyote
On January 1, 20XA, Rain Oil Corporation bought a developed lease for $300,000.During 20XA, Rain Oil Corporation incurred $600,000 of IDC on a successful well.Reserves of 400,000 barrels were
During 20XA, Core Petroleum incurred G&G costs of $20,000 for Project Area 15.Two areas of interest were identified. Detailed seismic studies were conducted on the areas of interests at the
Augusta Oil Corporation, an independent producer, began operations in June 20XA.During the first 2½ years of operation, Augusta acquired only two U.S. properties, which were noncontiguous. Costs
How does amortization of lease equipment such as storage tanks and separators differ under the three methods? Include in your answer a discussion of the method used, including which reserves are
Cowboy Oil Company, an integrated producer, has an unproved property with acquisition and capitalized G&G costs of $35,000. Cowboy also has a proved property with the following costs:Determine
Indicate which items are to be capitalized (C), expensed (E), and part capitalized and part expensed (C/E) for successful efforts, full cost, and tax accounting. Assume the maximum tax deductions are
On March 1, 20XA, Chuck Larson purchases mineral rights (MR) for $30,000. On June 1, 20XA, he leases the mineral rights to Grey Wolf Oil Company, retaining a 1/5 royalty interest (RI). Grey Wolf Oil
Harper Oil Corporation paid the following amounts in 20XD:Determine the tax basis of any assets and the amount of any tax deductions. Shut-in royalty payments (not recoverable). . $1,200 Shut-in
Garage Oil Company, an independent producer, has the following account balances at 1/1/20XA:Determine the amount of the tax loss on the following dates:a. On March 1, 20XA, the unproved property is
Tiger Energy has the following information:The lease is subleased to Phil Oil Corporation for $300,000, and Tiger retains an 1/16 ORI. At the date of the sublease, the FMV of the equipment is
During 20XB, Sunflower Energy incurs the following costs relating to Lease A, a producing property:REQUIRED: Determine the tax basis of any assets and the amount of any tax deductions. Supplies for
Tiger Energy, an independent producer, has average production from Lease A of 100 bbl/ day in 20XA from Lease A. The average selling price of oil in 20XA is $58/bbl. Net income from Lease A in 20XA
Sauer Oil Corporation, an integrated producer, incurs IDC costs in the following years as indicated. The IDC amounts marked with an asterisk (*) relate to dry-hole IDC.REQUIRED: Compute the amount
Green Oil Corporation owns and operates four oil and gas properties that are classified for tax purposes as four separate properties. Data for the four properties are presented below:REQUIRED:
Tiger Energy owns only one lease in the United States, Lease Q. The following information for Lease Q, which is burdened with a 1/6 royalty, is as of 12/31/20XD. All reserve, production, and sales
What are the duties of the operator? Nonoperator?
What is a carried working interest? Payout?
Placid Oil Corporation operates the Reida Lease. The accounting procedure attached to the JOA allows Placid to recoup its overhead by the use of a combined fixed rate—well basis of $1,000/producing
Hostetler Energy owns 70%, Challenger Company owns 20%, and Hill Oil Company owns 10% of the working interest property 1004. Assume Hostetler Energy is the operator and incurs the following costs
Bulldog Oil Corporation, the operator of Lease A, purchased casing with a list price of $60,000 for a joint interest property in which it has a 40% WI. The casing is to be used in a workover. The
Longhorn Oil Corporation transferred an item of equipment from its wholly owned warehouse to a jointly owned lease in which it has a 70% WI. The item of equipment is in Condition B, and the current
Core Petroleum owns 60%, Dwight Corporation owns 30%, and Webb Company owns 10% of the working interest property number 2008. Core Petroleum is the operator and bills Dwight and Webb monthly for
Grover Petroleum owns a piece of equipment, originally costing $60,000, that is currently being used on Lease A. Grover Petroleum owns a 40% working interest in Lease A and serves as the operator of
Brown Oil Company is the operator of Lease A and Lease B and has a 60% WI in each lease. A piece of equipment, which originally cost $30,000, is transferred from Lease A to Lease B. The current
The Raupe Lease has the following working interest owners: Reed Corporation 50%, League Energy 25%, and Sunshine Oil Company 25%. There is a 1/8 royalty on the lease. On April 1, 2011, Reed
Reed Corporation and Sunshine Oil Company agree to carry League’s share proportionately. The nonconsent penalty is 300%. On August 1, the Gusher No. 2, which was drilled and completed at a cost of
Session Gas Company owns a 33.3% working interest in a lease in West Texas. Roger Williams, a local farmer, owns a 1/8 royalty interest in the lease. Session is the operator, and its partners, Rocky
Identify the types of interests that are created in the following situations. If the interest is an overriding royalty or a production payment interest, also state whether it is a retained or
The following transactions occurred during 2018:a. Joyner Oil Company and Brown Oil Company jointly purchased a 2,000 acre lease in Oklahoma for $$60,000$. Joyner has a 60% WI, and Brown, a 40% WI.
Hays, Bush, and King signed a lease agreement with Big Pink, the owner of the mineral rights. Big Pink received a 1/7 royalty interest. The companies’ working interests are 50%, 30%, and 20%,
Yale Oil Company owns the working interest in a small lease in Louisiana that has a 1/6 royalty interest. The royalty interest owner is Mr. Bell. Yale also owns the working interest in numerous
Mabel Oil Company owns 100% of the working interest in a lease that has a 1/7 royalty interest. The royalty interest owner is Mr. Kyle. Needing additional funds to develop the property, Mabel sold
Wildcat Oil Company acquired an undeveloped lease for which it paid $$30,000$. The lease is burdened with a 1/8 royalty. Financially unable to develop the lease, Wildcat sold 60% of its working
Lomax Company assigned 40% of the working interest in an unproved property with a 1/8 royalty interest to Mabel Company in return for Mabel Company bearing all costs of drilling, developing, and
Company Z (a successful efforts company) owns 100% WI in a lease in which Dudley Smith owns a 1/8 royalty interest. Company Z conveys to Company Q 30% of the working interest in exchange for a cash
Company Z owns a 100% WI in a proved property with net capitalized costs of$$100,000$. Company Z sold the lease for $$250,000$ cash and a production payment of$$150,000$, plus interest of 10%
Philco Company owns a proved property with the following costs:Philco Company sells 100% of the working interest in the property to Company Q for $600,000.a. Give the entry for Philco Company to
Wildcat Oil Company leased undeveloped acreage from David Jones for $$30,000$, with Jones receiving a 1/8 royalty interest. Financially unable to develop the lease, Wildcat enters into a
Bingo Oil Company owns 100% of the working interest in a fully developed lease on which there is a 1/8 royalty interest. The lease has the following capitalized costs and reserve data as of January
Zink Company owns 100% of the working interest in a fully developed lease on which there is a 1/8 royalty interest. The lease has the following capitalized costs and reserve data as of January 1,
In 2016, Beta Company purchased the working interest of an unproved lease for$$50,000$. In 2017, Beta Company recognized impairment of $$20,000$ on this lease.In 2018, Beta Company sold the
Mair Company sold 50% of the working interest in a proved lease to Company Q for$$450,000$. Mair Company’s net cost basis in this proved property was $$200,000$. Mair Company uses the
Zepher Company acquired 100% of the working interest in an unproved property at a cost of $$50,000$. Zepher later sold the working interest, retaining an overriding royalty interest (ORI). Give the
Brown Company, a successful efforts company, has a 1/8 royalty interest in an unproved property. Assuming Brown Company’s net capitalized cost in the property is $100,000, give the entry to record
Greene Oil Company, a successful efforts company, owns 100% of the working interest in a 320 acre proved property with the following net, unamortized costs:Greene Oil Company sells 100% of the
Wolfforth Company sold its 100% WI in a proved property for $$600,000$ and retained an ORI. Wolfforth’s net cost basis in the property was $$500,000$. The fair market value of the entire
Flower Company owns a 100% WI in an unproved property for which it paid $80,000.The property is burdened with a 1/8 royalty. Flower Company agrees to farm out the working interest to Barrel Company
French Company signed a lease agreement with Rita Mack covering 900 acres in Oklahoma. Ms. Mack received a bonus of $50,000 and a 1/5 royalty interest, and French Company received 100% of the working
Fielder Oil Company, a successful efforts company, has an unproved lease for which it paid $150,000. The property was individually significant, and individual impairment of$50,000 had been assessed.
Bammel Oil Company, a successful efforts company, has an unproved lease for which it paid $50,000. The property is not considered to be individually significant. Make the journal entries to record
Gamble Company, a full cost company, has an unproved lease for which it paid$100,000. Give the entry to record the sale of the property, assuming Gamble Company sold the property for:a. $80,000b.
Hein Oil Company, a successful efforts company, owns 100% of the working interest in a proved property that has the following capitalized costs:A 1/8 royalty on the property is owned by Sammy Jones.
Carpenter Oil Company owns a 100% WI in a proved property in Wise County, Texas. Carpenter sells the working interest to Knight Oil Company for $$400,000$, plus a retained production payment
Sells Oil Company, a full cost company, has total capitalized costs in Venezuela of $$20,000,000$ and accumulated DD&A of $$4,000,000$. Proved reserves in Venezuela are 2,000,000 barrels.
What companies are required to present the disclosures specified by SFAS No. 69?
Casing Oil, a successful efforts company, began operations on January 1, 20XA.Assume the following facts about Casing’s first two years of operations. All reserve and production quantities apply
Buckley Oil Company, a successful efforts company, began operations January 1, 20XA. Assuming the following facts about Buckley’s first two years of operations, prepare the required disclosures
Wildcat Oil Company began operations on January 1, 20XA. The following facts relate to Wildcat’s first two years of operations. All reserve and production quantities apply only to Wildcat Oil’s
Tiger Oil began operations on January 1, 20XA. Assume the following facts about Tiger’s first two years of operations. All reserve and production quantities apply only to Tiger Oil’s interest.
Jones Oil Company operates under a PSC agreement in the South China Sea. Jones has 49% of the working interest, and Sinhai Oil Company (which is owned by the Chinese government) has 51% of the
Assume that Protex Company, a U.S. company, is involved in petroleum operations in Thailand. Protex Company has a 40% WI, while the Local Oil Company has a 60%WI. Annual gross production is to be
Ibis Company enters into a concession agreement with the British government.Ibis pays the government a $$10,000,000$ (U.S.) signing bonus and agrees to pay the government royalties of 8% of gross
Fortune Company enters into a risk service agreement with the Chilean government.Fortune pays the government, in U.S. dollars, a $$5,000,000$ signing bonus and also agrees to pay all of the costs
What does a high net wells to gross wells ratio indicate?
What does a low average reserves per well ratio indicate?
What is the value added ratio? What does a high (low) value added ratio indicate?
Lomax Company reported the following costs on its financial statements(in thousands):REQUIRED: Using the reserve disclosure for Lomax Company in problem 13 and the data presented in this problem,
Lomax Company reported the following expenses in its financial statements(in thousands):REQUIRED: Using the reserve disclosure for Lomax Company given in problem 13 and the data presented in this
Lomax Company’s Statement No. 69 disclosures included the following information:REQUIRED: Using the information for Lomax Company in problems 13, 14, and 15 and in this problem:a. Compute the value
Discuss the ratios computed for Lomax Company in problems 13, 14, 15, and 16.What is your assessment of the performance and future potential of Lomax Company?Problems 13The following reserve table
Dwight Corporation has the following groups of individually insignificant leases at 12/31/15.Prepare journal entries to record impairment for each of the groups at 12/31/15. Total costs Total
Give the entry to record abandonment in each of the following cases.a. Gaylene Energy Company abandoned an unproved property that cost $150,000.The property was considered significant and had been
Opaque Corporation purchased land in fee for $$420,000$. The land was located in a remote area in Oklahoma. An appraiser estimated the fair market value of the surface rights to be $$200,000$.
On January 1, 2010, Local Petroleum entered into a concession agreement with the government of Egypt and paid a $$3,000,000$ signing bonus. The agreement covers 20,000 acres, has a term of five
Lomax Company typically acquires a large number of individually insignificant properties each year. In computing impairment, Lomax groups these properties by year of acquisition. During 2015, Lomax
Which of the following would be IDC?a. Labor costs to build a road to the drillsiteb. Labor costs to build a road to a producing wellc. Cost of a drillstem testd. Cost of surface casinge.
An exploratory-type stratigraphic test well that was drilled offshore discovered proved reserves. However, it was decided that the permanent platform should be placed in a different location. How
Lomax Oil Company drilled an exploratory well on a lease located in a remote area.The well found reserves, but not enough to justify building a necessary pipeline. The company does not plan to drill
Intercontinental Oil and Gas Company drilled an exploratory well that found reserves, but the reserves could not be classified as proved at that time. No major capital expenditure was required. How
Near the end of 2017, Royalty Corporation drilled an exploratory well that found oil, but not in commercially producible quantities unless the price of oil went up from $100 per barrel to $150 per
a. Wildcat Oil Corporation drills an exploratory well during 2016 that finds oil, but not in commercially producible quantities at current oil prices. Since proved reserves are not found, Wildcat
Mountain Petroleum had an exploratory well in progress at the end of 2018. Total costs incurred by 12/31/18 were $300,000. During January 2019, drilling was continued, and costs of $200,000 were
Pessimistic Oil Corporation incurred the following costs during 2018:a. Began drilling an exploratory-type stratigraphic test well, incurred $50,000 of IDCb. Began drilling an exploratory-type
Structure Petroleum began in 2015 with the acquisition of four individually significant unproved leases. Give the entries, assuming the following transactions. You may combine entries for items
Record the following transactions:a. Landslide Energy incurred costs of $30,000 in preparing a drillsite.b. The contractor was paid $400,000 on a day-rate contract (all intangible).c. Equipment
Optimistic Oil Company incurred the following costs during the years 2016 and 2017:2016a. Contracted and paid $50,000 for G&G surveys during the year.b. Leased acreage in four areas as follows:1)
During the calendar year 2015, Deep Corporation had the following transactions on an unproved property:Grant #1 was drilled, with IDC costs of $310,000 and equipment costs of $42,000.The well was
During 2015, O’Neal Corporation incurred the following costs in connection with the Batch lease:a. Acquired the 800 acre Batch lease at a lease bonus of $70 per acre and other acquisition costs of
The Cross Oil Corporation incurred the following costs and had the following other transactions for the years 2015 and 2016. The company uses the successful efforts method of accounting.2015a. Paid
Support equipment used to drill a development well cost $13,000 and has a 10-year life with a salvage value of $1,000. The equipment was used for three months in drilling Badger #1. Record
Bartz Corporation paid a seismic crew $2,000 to complete a G&G survey to select a drillsite where Cellar #1 would be spudded-in. Record the above transaction.
Joust Oil Company had the following transactions in 2015. Record the transactions.a. Acquired an undeveloped lease, $40,000b. Paid a drilling contractor as follows:c. Paid costs in evaluating the
Decade Petroleum incurred and paid the following costs during 2016:Record Decade Petroleum's transactions. Lease A Unproved Lease B Unproved Lease C Proved Lease D Proved Purchased Acquisition costs
The Kincaid Oil Company has unproved property costs of $40,000 at January 1, 2016.During 2016, Kincaid incurred $400,000 drilling costs on Lease A. An 8%, $500,000 note is outstanding during the
Duck Petroleum hires a drilling contractor to drill a well to the depth of 8,000 feet at a cost of $300,000. The $300,000 cost includes $5,000 for surface casing. Any drilling to be completed after

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