Chapter 6 Homework

Cramer Oil Company obtained shooting rights on 20,000 acres at $10/acre and then hired an independent geological firm to conduct the initial G&G work for $360,000. As a result of the G&G work, Cramer Company decided to lease 750 acres (ignore acquisition costs) and hired the same geological firm to perform detailed G&G studies on the 750 acres at a cost of $105,000. Give the entries to record these transactions.

During 2022 the exploration department of Bubblin Crude Oil Corporation incurred the following costs in exploring the Wolfcamp basin. Give the entries:

Shooting rights 12,000

Bottom-hole contribution 40,000

Supplies for exploration (G&G) activities 8,000

Salaries for exploration (G&G) activities 100,000

Mapping costs for exploration (G&G) activities 15,000

Depreciation of exploration equipment 20,000

Transportation of seismic crew 5,000

Operating costs for exploration (G&G) equipment 3,000

Discuss why each party to a test-well contribution situation would enter into the transaction.

Groundhog Petroleum had the following transactions in 2022 concerning test-well contributions:

Contracted with Parsons Energy Corporation, agreeing to pay $50,000 if a well was drilled on Parsons lease to a depth of 10,000 feet.

Contracted to pay Proton Oil Company $40,000 if a well being drilled on Protons property was dry.

Agreed to pay Gaspar Oil Company $100,000 if a well being drilled reached a depth of 7,500 feet.

Results from the above transactions were the following:

Because of mechanical difficulties, the Parsons well was abandoned at 9,500 feet

The Proton well was dry

The Gaspar well was completed as a producer at 12,000 feet.

Prepare entries for the above transactions, assuming Groundhog Petroleum fulfilled its contractual obligations.

Arbusta Energy obtained a three-year lease on 2,000 acres on March 1, 2021 that contained a $5 per acre delay rental clause. Drilling operations were started on April 15, 2022 and completed on August 16, 2022. The well, determined to be dry, was plugged and abandoned. No further drilling operations were started during the primary term. All required delay rentals were paid. Give all entries relating to the delay rental requirement.

Quantrill Oil Company obtained seismic equipment on January 1, 2021, at a cost of $200,000. The equipment was used in G&G operations for the calendar year 021. The equipment has an estimated useful life of 10 years with a salvage value of $30,000. The company uses the straight-line method in computing depreciation. Record the depreciation for the year 2021.

Define the following:

Shooting rights

G&G costs

Carrying costs

Dry-hole contribution

Bottom-hole contribution

Discuss accounting for seismic costs. Be sure to include in your answer an explanation of the situations in which companies may opt to capitalize seismic costs and whether of not this practice is in compliance with U.S. GAAP.

Creole Oil Company charges all costs under an Authorization for Expenditure (AFE) to a deferred asset account. Creole has a calendar year fiscal year end. Under AFE 134005 Creole had G&G exploration costs of $162,000 billed December 19, 2021. Make the original entry for the cost, the adjusting entry on Jan 2, 2022, and the reversing entry Jan 3, 2022.

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Reference Books:

Petroleum Accounting - 5e

Fundamentals of Oil Gas Accounting - 6e

ACCT-6310.701 Energy Accounting

The University of Texas Permian Basin

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Chapter 6 Homework 1. Cramer Oil Company obtained shooting rights on 20,000 acres at $10 /acre and then hired an independent geological firm to conduct the initial G&G work for $360,000. As a result of the G\&G work, Cramer Company decided to lease 750 acres (ignore acquisition costs) and hired the same geological firm to perform detailed G&G studies on the 750 acres at a cost of $105,000. Give the entries to record these transactions. 2. During 2022 the exploration department of Bubblin Crude Oil Corporation incurred the 3. Discuss why each party to a test-well contribution situation would enter into the transaction. 4. Groundhog Petroleum had the following transactions in 2022 concerning test-well contributions: a. Contracted with Parsons Energy Corporation, agreeing to pay $50,000 if a well was drilled on Parson's lease to a depth of 10,000 feet. b. Contracted to pay Proton Oil Company $40,000 if a well being drilled on Proton's property was dry. c. Agreed to pay Gaspar Oil Company $100,000 if a well being drilled reached a depth of 7,500 feet. Results from the above transactions were the following: a. Because of mechanical difficulties, the Parson's well was abandoned at 9,500 feet b. The Proton well was dry c. The Gaspar well was completed as a producer at 12,000 feet. Prepare entries for the above transactions, assuming Groundhog Petroleum fulfilled its contractual obligations. 5. Arbusta Energy obtained a three-year lease on 2,000 acres on March 1, 2021 that contained a $5 per acre delay rental clause. Drilling operations were started on April 15, 2022 and completed on August 16, 2022. The well, determined to be dry, was plugged and abandoned. No further drilling operations were started during the primary term. All required delay rentals were paid. Give all entries relating to the delay rental requirement. 6. Quantrill Oil Company obtained seismic equipment on January 1,2021 , at a cost of $200,000. The equipment was used in G&G operations for the calendar year 021. The equipment has an estimated useful life of 10 years with a salvage value of $30,000. The company uses the straight-line method in computing depreciation. Record the depreciation for the year 2021. 7. Define the following: a. Shooting rights b. G&G costs c. Carrying costs d. Dry-hole contribution e. Bottom-hole contribution 8. Discuss accounting for seismic costs. Be sure to include in your answer an explanation of the situations in which companies may opt to capitalize seismic costs and whether of not this practice is in compliance with U.S. GAAP. 9. Creole Oil Company charges all costs under an Authorization for Expenditure (AFE) to a deferred asset account. Creole has a calendar year fiscal year end. Under AFE 134005 Creole had G\&G exploration costs of $162,000 billed December 19,2021 . Make the original entry for the cost, the adjusting entry on Jan 2, 2022, and the reversing entry Jan 3, 2022. Reference Books: Petroleum Accounting - 5e Fundamentals of Oil Gas Accounting - 6e ACCT-6310.701 Energy Accounting The University of Texas Permian Basin Chapter 6 Homework 1. Cramer Oil Company obtained shooting rights on 20,000 acres at $10 /acre and then hired an independent geological firm to conduct the initial G&G work for $360,000. As a result of the G\&G work, Cramer Company decided to lease 750 acres (ignore acquisition costs) and hired the same geological firm to perform detailed G&G studies on the 750 acres at a cost of $105,000. Give the entries to record these transactions. 2. During 2022 the exploration department of Bubblin Crude Oil Corporation incurred the 3. Discuss why each party to a test-well contribution situation would enter into the transaction. 4. Groundhog Petroleum had the following transactions in 2022 concerning test-well contributions: a. Contracted with Parsons Energy Corporation, agreeing to pay $50,000 if a well was drilled on Parson's lease to a depth of 10,000 feet. b. Contracted to pay Proton Oil Company $40,000 if a well being drilled on Proton's property was dry. c. Agreed to pay Gaspar Oil Company $100,000 if a well being drilled reached a depth of 7,500 feet. Results from the above transactions were the following: a. Because of mechanical difficulties, the Parson's well was abandoned at 9,500 feet b. The Proton well was dry c. The Gaspar well was completed as a producer at 12,000 feet. Prepare entries for the above transactions, assuming Groundhog Petroleum fulfilled its contractual obligations. 5. Arbusta Energy obtained a three-year lease on 2,000 acres on March 1, 2021 that contained a $5 per acre delay rental clause. Drilling operations were started on April 15, 2022 and completed on August 16, 2022. The well, determined to be dry, was plugged and abandoned. No further drilling operations were started during the primary term. All required delay rentals were paid. Give all entries relating to the delay rental requirement. 6. Quantrill Oil Company obtained seismic equipment on January 1,2021 , at a cost of $200,000. The equipment was used in G&G operations for the calendar year 021. The equipment has an estimated useful life of 10 years with a salvage value of $30,000. The company uses the straight-line method in computing depreciation. Record the depreciation for the year 2021. 7. Define the following: a. Shooting rights b. G&G costs c. Carrying costs d. Dry-hole contribution e. Bottom-hole contribution 8. Discuss accounting for seismic costs. Be sure to include in your answer an explanation of the situations in which companies may opt to capitalize seismic costs and whether of not this practice is in compliance with U.S. GAAP. 9. Creole Oil Company charges all costs under an Authorization for Expenditure (AFE) to a deferred asset account. Creole has a calendar year fiscal year end. Under AFE 134005 Creole had G\&G exploration costs of $162,000 billed December 19,2021 . Make the original entry for the cost, the adjusting entry on Jan 2, 2022, and the reversing entry Jan 3, 2022. Reference Books: Petroleum Accounting - 5e Fundamentals of Oil Gas Accounting - 6e ACCT-6310.701 Energy Accounting The University of Texas Permian Basin