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 split in the following order:

a. Royalty is 15% of annual gross production and is to be paid in-kind

b. VAT is equal to 5% of annual gross production and is to be paid in-kind

c. Cost oil is limited to 50% of gross production, with costs to be recovered in the following order:

1) Operating expenses paid 40% by Protex Company and 60% by Local Oil Company.

2) Exploration costs (paid entirely by Protex Company).

3) Development costs: after completion of exploration, Local Oil Company opted to participate at 60%. Therefore, development and operating costs were paid 40% by Protex Company and 60% by Local Oil Company.

d. Any excess remaining after cost recovery become profit oil:

1) Of the profit oil, 25% goes to the government.

2) The remainder is split between Protex and Local Oil Company based on their working interests.

For 2014, assume the following:

• Recoverable operating costs total $2,600,000.

• Exploration costs unrecovered to date total $260,000,000.

• Development costs unrecovered to date total $1,300,000,000.

• Any costs not recovered in the current year may be carried forward to be recovered in future years.

• The annual gross production for the year is 10,000,000 barrels of oil.

• The agreed upon price is $65/bbl.

REQUIRED: Allocate the production between the parties.