Chapter 4 Homework

1) What are the two allowable methods for accounting for Oil & Gas interests?

2) Which method is popular with small and mid-sized oil & gas firms?

3) What is revenue recognition accounting? Why was it eventually abandoned?

4) Give an overview of what FAS 144 details.

5) Where are the disclosure requirements for Oil & Gas companies that are SEC registrants found?

6) List the costs that are treated the same under successful efforts and full cost accounting. List the costs that are treated differently.

7) What accounting treatment is given to the following costs under successful efforts: acquisition costs, exploration costs, development costs, and production costs.

8) Define the following:

a) Reserves

b) Proved reserves

c) Proved developed reserves

d) Proved area

e) Field

9) Define the following:

a) Exploratory well

b) Development well

c) Delineation well

d) New field wildcat well

e) Extension well

f) Service well

g) Stratigraphic test well

10) How are "dry holes" treated under successful efforts vs Full Cost accounting?

11) When is a delineation well classified as an exploratory well versus a development well?

12) Lease A has a known productive horizon of 15,000 feet. A well is drilled to 10,000 feet. Would the well be classified as an exploratory or development well?

13) Blackshear Petroleum, a successful efforts company, drilled an exploratory well offshore at a cost of $6 million. The well was dry, but Blackshear felt that the G&G data obtained from the well was promising and drilled another well close to the first one. Should the first well be expensed of capitalized?

14) What is the normal "cost center" under full cost accounting?

15) Connor Oil Company incurred the following costs during calendar year 2022:

a) 2/7 Cost of geological and geophysical activities to locate and oil prospect $350,000

b) 3/18 Acquisition costs for a 800-acre lease: lease bonus payment of $2000/acre; other costs incurred in acquiring the property, $9,000

c) 6/3 Dry hole costs of an exploratory well $2,345,000

d) 7/12 Successful exploratory well costs, $3,015,000

e) 8/12 Cost of production facilities such as flow lines and separators, $1,135,000

f) 9/1 Production cost $125,000

Prepare the journal entries for the above transactions using the successful efforts method of accounting.

16) Reedah Oil Corporation incurred the following cost during the fiscal year ending June 30, 2022:

a) 7/1/21 Cost of geological and geophysical activities to locate and oil prospect $435,000

b) 8/10/21 Acquisition costs for a 1,000-acre lease: lease bonus payment of $1500/acre; other costs incurred in acquiring the property, $7,000

c) 12/15/21 Dry hole costs of an exploratory well $1,965,000

d) 1/18/22 Successful exploratory well costs, $2,435,000

e) 4/10/22 Cost of production facilities such as flow lines and separators, $835,000

f) 9/30/22 Production cost $95,000

Indicate whether the following costs should be expenses or capitalized (C) depending on whether the company uses successful efforts or the full cost method of accounting.

	Expense	Capital	Expense	Capital
Acquisition Costs
G&G Costs
Exploratory dry holes
Successful exploratory wells
Development wells, dry
Development wells, successful
Production facility costs
Production costs

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Reference Book: Petroleum Accounting - 5e Subject: ACCT-6310.701 Energy Accounting The University of Texas Permian Basin ______________________________________________________

Chapter 4 Homework 1. What are the two allowable methods for accounting for Oil \& Gas interests? 2. Which method is popular with small and mid-sized oil \& gas firms? 3. What is revenue recognition accounting? Why was it eventually abandoned? 4. Give an overview of what FAS 144 details. 5. Where are the disclosure requirements for Oil \& Gas companies that are SEC registrants found? 6. List the costs that are treated the same under successful efforts and full cost accounting. List the costs that are treated differently. 7. What accounting treatment is given to the following costs under successful efforts: acquisition costs, exploration costs, development costs, and production costs. 8. Define the folloing: a. Reserves b. Proved reserves c. Proved developed reserves d. Proved area e. Field 9. Define the following: a. Exploratory well b. Development well c. Delineation well d. New field wildcat well e. Extension well f. Service well g. Stratigraphic test well 10. How are "dry holes" treated under successful efforts vs Full Cost accounting? 11. When is a delineation well classified as an exploratory well versus a development well? 12. Lease A has a known productive horizon of 15,000 feet. A well is drilled to 10,000 feet. Would the well be classified as an exploratory or development well? 13. Blackshear Petroleum, a successful efforts company, drilled an exploratory well offshore at a cost of $6 million. The well was dry, but Blackshear felt that the G\&G data obtained from the well was promising and drilled another well close to the first one. Should the first well be expensed of capitalized? 14. What is the normal "cost center" under full cost accounting? 15. Connor Oil Company incurred the following costs during calendar year 2022: a. 2/7 Cost of geological and geophysical activities to locate and oil prospect $350,000 b. 3/18 Acquisition costs for a 800-acre lease: lease bonus payment of $2000 /acre; other costs incurred in acquiring the property, $9,000 c. 6/3 Dry hole costs of an exploratory well $2,345,000 d. 7/12 Successful exploratory well costs, $3,015,000 e. 8/12 Cost of production facilities such as flow lines and separators, $1,135,000 f. 9/1 Production cost $125,000 Prepare the journal entries for the above transactions using the successful efforts method of accounting. 16. Reedah Oil Corporation incurred the following cost during the fiscal year ending June 30,2022 : a. 7/1/21 Cost of geological and geophysical activities to locate and oil prospect $435,000 b. 8/10/21 Acquisition costs for a 1,000 -acre lease: lease bonus payment of $1500 /acre; other costs incurred in acquiring the property, $7,000 c. 12/15/21 Dry hole costs of an exploratory well $1,965,000 d. 1/18/22 Successful exploratory well costs, $2,435,000 e. 4/10/22 Cost of production facilities such as flow lines and separators, $835,000 f. 9/30/22 Production cost $95,000 Indicate whether the following costs should be expenses or capitalized (C) depending on whether the Chapter 4 Homework 1. What are the two allowable methods for accounting for Oil \& Gas interests? 2. Which method is popular with small and mid-sized oil \& gas firms? 3. What is revenue recognition accounting? Why was it eventually abandoned? 4. Give an overview of what FAS 144 details. 5. Where are the disclosure requirements for Oil \& Gas companies that are SEC registrants found? 6. List the costs that are treated the same under successful efforts and full cost accounting. List the costs that are treated differently. 7. What accounting treatment is given to the following costs under successful efforts: acquisition costs, exploration costs, development costs, and production costs. 8. Define the folloing: a. Reserves b. Proved reserves c. Proved developed reserves d. Proved area e. Field 9. Define the following: a. Exploratory well b. Development well c. Delineation well d. New field wildcat well e. Extension well f. Service well g. Stratigraphic test well 10. How are "dry holes" treated under successful efforts vs Full Cost accounting? 11. When is a delineation well classified as an exploratory well versus a development well? 12. Lease A has a known productive horizon of 15,000 feet. A well is drilled to 10,000 feet. Would the well be classified as an exploratory or development well? 13. Blackshear Petroleum, a successful efforts company, drilled an exploratory well offshore at a cost of $6 million. The well was dry, but Blackshear felt that the G\&G data obtained from the well was promising and drilled another well close to the first one. Should the first well be expensed of capitalized? 14. What is the normal "cost center" under full cost accounting? 15. Connor Oil Company incurred the following costs during calendar year 2022: a. 2/7 Cost of geological and geophysical activities to locate and oil prospect $350,000 b. 3/18 Acquisition costs for a 800-acre lease: lease bonus payment of $2000 /acre; other costs incurred in acquiring the property, $9,000 c. 6/3 Dry hole costs of an exploratory well $2,345,000 d. 7/12 Successful exploratory well costs, $3,015,000 e. 8/12 Cost of production facilities such as flow lines and separators, $1,135,000 f. 9/1 Production cost $125,000 Prepare the journal entries for the above transactions using the successful efforts method of accounting. 16. Reedah Oil Corporation incurred the following cost during the fiscal year ending June 30,2022 : a. 7/1/21 Cost of geological and geophysical activities to locate and oil prospect $435,000 b. 8/10/21 Acquisition costs for a 1,000 -acre lease: lease bonus payment of $1500 /acre; other costs incurred in acquiring the property, $7,000 c. 12/15/21 Dry hole costs of an exploratory well $1,965,000 d. 1/18/22 Successful exploratory well costs, $2,435,000 e. 4/10/22 Cost of production facilities such as flow lines and separators, $835,000 f. 9/30/22 Production cost $95,000 Indicate whether the following costs should be expenses or capitalized (C) depending on whether the