Test #2 Acquisition Drilling Development Costs

Name: ______________________________________________________________________________

Email Address: ________________________________________________________________________

Date: ______________________

Score: ______________________

1. Cowboy Exploration & Production Company incurred the following costs during 2019:

	Activity	Lease A	Lease B	Lease C
Jan 01, 2019	Acquisition Costs	Purchased 1,000 acres @ a lease bonus of $100/acre	Purchased 800 acres @ a lease bonus of $70/acre	Purchased 600 acres at $60/acre bonus
Jan 15, 2019	G&G Costs	$60,000	$30,000	$40,000
Mar 12, 2019	Contractors fee	$1,890,000	$430,000	$1,705,000
Mar 22, 2019	Equipment rental	$100,000	$90,000	$130,000
Mar 30, 2019	Drilling fluid	$30,000	$20,000	$50,000
Apr 10, 2019	Fuel	$18,000	$22,000	$14,000
Apr 15, 2019	Drill bits	$55,000	$35,000	$60,000
Apr 30, 2019	Cementing services	$35,000	$13,500	$30,000
Jun 1, 2019	Hauling & transportation	$20,000	Drilling completed; dry hole	$50,000
Jun 26, 2019	Production casing	$56,000		$75,000
Aug 1, 2019	Tank battery	$310,000		$395,000
Sept 13, 2019	Flow lines & connections	$428,000		$176,000
Sept 15,2019	Pumping unit motor and accessories	$45,000		$135,000
Sept 28, 2019	Casing head & connections	$112,000		$260,000
Oct 4, 2019	Tubing	$75,000		$70,000
Oct 18, 2019	Separating & treating equipment	$150,000		$90,000
Oct 21, 2019	Measuring equipment	$60,000		$150,000
Oct 30, 2019	Testing & acidizing	$135,000		$80,000
12/31/2019	Production during 2019	20,000 bbl. 120,000 Mcf		10,000 bbl. 100,000 Mcf
12/31/2019	Estimated Proved Reserves	950,000 bbl. 450,000 Mcf		650,000 bbl. 300,000 Mcf
12/31/2019	Estimated Proved Developed Reserves	100,000 bbl. 200,000 Mcf		300,000 bbl. 120,000 Mcf
12/31/2019	Lifting Costs	$40,000		$25,000

Additional information to consider:

The fair market values of the surface and mineral rights were determined by a qualified appraiser as follows

Lease A Surface rights $180,000

Mineral rights $140,000

Lease B Surface rights $400,000

Mineral rights $100,000

Lease C Surface rights $190,000

Mineral rights $240,000

On July 31, 2019 Lease B is determined to be 70% impaired.

Compute DD&A for the year ended 12/31/2019 using a common unit of measure based on BOE.

During 2019 Cowboy Exploration & Production Company produced 30,000 bbl. of oil and sold 28,500 bbl. to

UHD Pipeline Company at $1.75/gallon.

On December 31, 2019, Lease B is considered to be 100% impaired and is abandoned.

From the data above:

(1) Prepare the necessary journal entries.

(2) Prepare an Income Statement for Cowboy Exploration & Production

Company using the Successful Efforts method of accounting considering the

necessary acquisition, exploration, drilling and development and production

costs.