Lil Oil Company has a WI in Lease X with the following costs and reserves as of January 1, 20X1.

Proved

PropertyIDC & Eqpt

Asset100,000500,000

Accumulated DD&A( 40,000)(200,000)

Net carrying value60,000300,000

Estimated proved reserves 1/1/20X1220,000 bbls

Estimated proved developed reserves 1/1/20X1140,000 bbls

No additional drilling occurred during the year.

(a)During the first quarter of 20X1, production was 20,000 Bbls.Compute DD&A expense for the first quarter of 20X1.

(b)On June 30, 20X1, a new reserve report estimated the following reserves as of June 30, 20X1:

Proved reserves250,000 Bbls

Proved developed reserves150,000 Bbls

Production for the second quarter of 20X1 was 25,000 bbls.Compute DD&A expense for the second quarter of 20X1 assuming that Lil Oil Company uses the new reserve report to compute DD&A expense for the entire second quarter.

(c) Discuss how production of both oil and gas affects the DD&A computation (No computation is necessary).