OIL GAS ACCOUNTiNG
1 ACC Oil & Gas Accounting 3307 Spring 2020 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 Contractor’s 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 2 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.