Wildcat Oil Company leased undeveloped acreage from David Jones for \($30,000\) with Jones receiving a 1/8 RI. Financially unable to develop the lease, Wildcat enters into a farm-in/farm-out agreement with Jayhawk Company. Jayhawk agrees to drill and complete a well in return for 60% of the WI and the right to recover all of its costs. Jayhawk drills and completes the well for \($100,000\). Estimated proved reserves are 500,000 barrels, and proved developed reserves are 100,000 barrels. Jayhawk is the operator, and production totals 4,000 barrels per month for the first six months. Assume that the average selling price is \($20\) and lifting costs average \($5\) per barrel. Ignore severance taxes and assume reserve estimates do not change. Jayhawk assumes the responsibility of paying the RI owner.

a. Calculate payout.

b. Assuming that both companies are successful-efforts companies, give all of the entries including monthly DD&A expense for the first three months that would be made by Wildcat Oil Company and by Jayhawk Company.