Question
236 FUNDAMENTALS OF OIL & GAS ACCOUNTING a. Computation of DD&A based on equivalent energy units for 2011 is as follows Equivalent Units Production:
236 FUNDAMENTALS OF OIL & GAS ACCOUNTING a. Computation of DD&A based on equivalent energy units for 2011 is as follows Equivalent Units Production: Oil Gas (120,000/6) Total BOE Proved reserves: Oil 50,000 b 20.000 BOE 20.000 BOE 800.000 b Gas (3,000,000/6) Total BOE DD&A $2,700,00 500,000 BOE 1,300,000 BOE x70,000 BOE $137.956 1,300,000 BOE+70,000 BOE b. Computation of DD&A based on unit-of-revenue is as follows: Unit-of-Revenue Production: Oil (50,000 x $90) Gas (120,000 x $8) Total revenue Proved reserves: Oil (800,000 x $100) Gas (3,000,000 x $10) Total DD&A $2,700,00 $ 4,500,000 960,000 5,460,000 $ 80,000,000 30,000,000 $110.000.000 x$5,460,000 $127.681 $110,000,000+ $5,460,000 c. Which would be the appropriate basis in this case? One barrel of oil is approximat equivalent to 6 Mcf of gas, but the current price of 1 barrel of oil is $100 compared $60 for 6 Mcf of gas. The average selling price of 1 barrel of oil during the year was $90 compared to $48 for 6 Mcf of gas. This analysis indicates that the DD&A am based on relative energy units will be different from the DD&A amount based on unit-of-revenue. Therefore, if the difference is considered to be material, unit-of- would be the appropriate basis
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