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734. FUNDAMENTALS OF OIL & GAS ACCOUNTING 7. Federal Oil Company enters into a concession agreement with the British govern- ment. Federal pays the government a $12,000,000 (US) signing bonus and agrees to pay the government royalties of 10% of gross production and a 5% severance tax. Federal Oil Company bears all of the costs associated with exploration, development, and production. During 2019, Federal Oil Company spends S9000,000 on exploration and drilling costs. Gross revenue was $10,000,000, and production costs were $4,000,000. The income tax laws allow deduction of all production costs, with exploration and drilling costs deductible over an eight-year period. The tax rate is 30%. REQUIRED: Show how the gross revenue for 2019 would be shared by the parties. 8. Cooper Oil Company enters into a risk service agreement with the Chilean govern- ment. Cooper Oil Company pays the government, in US dollars, an $8,000,000 signing bonus and also agrees to pay all of the costs associated with exploration, development, and production. (The contract defines costs incurred in the explora- tion and development phase of each project area as CAPEX, and all costs incurred in the production phase as OPEX.) Each year in which production occurs, the government agrees to pay Cooper Oil Company a fee comprised of the following: a. All OPEX incurred in the current year b. 1/10th of all unrecovered CAPEX c. $0.30/bbl on production from 0 to 4,000 bbl/day, $0.50/bbl on production from 4,001 to 10,000 bbl/day, and $0.90/bbl on production greater than 10,000 bbl/day The maximum total fee that will be paid in any year is $1.30/bbl times the total number of barrels produced. Any unrecovered OPEX or CAPEX (unrecovered due to the maximum fee) can be carried forward to future years. Assume that in 2019, production commences on the Llama Field. At that time, Cooper Oil Company had spent $15,000,000 on CAPEX, and during 2019 spends $5,000,000 in OPEX. Production equals 5,110,000 barrels or 5,110,000/365 = 14,000 bbl/day. REQUIRED: Compute the fee that Cooper Oil Company would receive for 2019. 9. Operations Venture Oil Company operates under a PSC agreement in the South China Sea. Venture has 49% of the working interest, and Sinhai Oil Company (which is owned by the Chinese government) has 51% of the working interest. The agree- ment calls for annual gross production to be split in the following order: a. VAT equal to 7% of annual gross production b. Royalty of 13% of annual gross production c. Cost oil is limited to 62% of annual gross production, with costs to be recovered in the following order: 1) Operating expenses 2) Exploration expenditures (Venture Oil Company, 100%) 3) Development costs (Venture Oil Company, 49%, and Sinhai Oil Company, 51%) d. Annual gross production remaining after cost recovery becomes profit oil and is split as follows: 1) The government receives 15% of profit oil. 2) The remaining 85% is shared by Venture and Sinhai based on their working interests. During 2019: Recoverable operating costs equal $4,000,000. Unrecovered exploration costs equal $10,000,000. Unrecovered development costs equal $100,000,000. The annual gross production for the year is 2,000,000 barrels of oil. REQUIRED: a. Assuming the price to be used to convert costs into barrels is $100/bbl, allocate the production to the parties. b. Assuming the price to be used to convert costs into barrels is $80/bbl, allocate the production to the parties