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
How many gross barrels of oil will be produced until the well pays out?
Group of answer choices
18,727
16,885
20,000
19,074
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