Question
Company A and Company B enter into an agreement where Company A, the carrying party, will drill a well to a specified depth on Bs
Company A and Company B enter into an agreement where Company A, the carrying party, will drill a well to a specified depth on Bs lease. Company A will have 100 percent of the working interest until payout. After payout, Company A will have a 50 percent WI and Company B will have a 50 percent WI. The leasehold acquisition costs paid by Company B were $90,000. Company A incurred IDC of $880,000 and equipment costs of $150,000. The lease is subject to a 1/8 royalty interest. The estimated sales price per barrel of oil is $80 and the estimated operating expenses are $15 per barrel. The severance tax rate is 5%.
The estimated reserves before any production are as follows:
Proved reserves 70,000 barrels
Proved developed reserves 40,000 barrels
QUESTION:
What is the balance in the payout account after drilling and equipping the well, but before any production?
Group of answer choices
$970,000
$1,030,000
$1,120,000
$940,000
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