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 following costs:

As a result of the detailed seismic studies, the following leases were obtained:

During 20XB, Core Petroleum made the following payments:

The well on Lease B was completed early in January 20XC and was successful. Core Petroleum’s share of production from the well was 10,000 barrels of oil. All 10,000 barrels of oil were sold during 20XC. Core’s share of estimated reserves at year-end was 300,000 barrels. The selling price of the oil was $60/bbl, and lifting costs were $200,000.
Lease A was abandoned in March 20XC, and Lease B was abandoned early in January 20XD. No oil was produced during 20XD.

a. Determine the tax effects for the above transactions in each year, assuming Core is an independent producer. Ignore percentage depletion, but remember DD&A.

b. Determine any tax effects that would be different if Core were an integrated producer rather than an independent producer.

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Interest Area Cost 1 $60,000 2 40,000