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 only to Casing Oil’s interest. Prepare the required disclosures under SFAS No. 69.

Assume a tax rate of 40%, and that Casing Oil does not qualify for percentage depletion because it is an integrated producer. For purposes of the required capitalization and amortization of 30% of IDC, assume nine months of amortization in 20XA. Because of the short life of Lease R, also assume Casing elects to use the unit-of-production method for calculating depreciation. Use proved reserves for depletion and proved developed reserves for depreciation. Ignore the alternative minimum tax and deferred taxes. (What is the significance of no estimated future development costs on Lease R as of 12/31/XB?)

Transcribed Image Text:

Item a. Acquisition costs b. G&G costs c. Drilling costs: IDC Tangible 12/31/20XA $ 20,000 Lease R Lease S $ 25,000 $40,000 $ 50,000 $250,000 Life of equipment d. Drilling results: e. Estimated production of estimated proved reserves, bbl 50,000 10 years Proved reserves 20XB 10,000 20XC- 7,500 $50,000 Dry 20XD 9,000 f. Reserve estimate, bbl 12/31/XA: Proved, at 12/31/ (decreases by estimated production) 20XA- 26,500 20XB 16,500 20XC- 9,000