1. WWD Oil company operates under a PSC agreement in the South China Sea. WWD has 40% of the working interest and local oil company (which is owned by the Chinese government) has 60% of the working interest the agreement calls for annual gross production to be split in the following order:
2. VAT equals to 5% of annual gross production
3. Royalty of 10% of annual gross production
4. Cost oil is limited to 70% of annual gross production, with costs to be recovered in the following order:

1.- Operating expense

2.- Exploration costs expenditures (WWD oil company, 100%)

3.- Development costs (WWD oil company 40%, and local oil company, 60%)

1. Annual gross production remaining after cost recovery becomes profit oil and is split:
2. 1.- The government receives 20% of profit oil

2.- The remaining 80% is shared by WWD and local based on their working interests.

During 2012:

1.- Recoverable operating costs equal $2,000,000

2.- unrecovered exploration costs equal $5,000,000

3.- Unrecovered development costs equal $50,000,000

4.- The annual gross production for the year 2,000,000 barrels of oil.

Assuming the price to be used to convert costs into barrels is $100/bbl. allocate the production to WWD Oil company. Identify each element of the allocation.