Chapter 1

3. List the steps in finding oil and gas

1. Identify area
2. lease or option to lease
3. detailed G&G work to evaluate and test area
4. Data analyzed
5. More seismic studies
6. Well is drilled
7. Justify completing well dependent on sufficient oil and gas
8. Sufficient oil? Well is completed
Insufficient oil? Repeat process new location
4. What is the difference between an operating (working) interest and a
nonoperating (nonworking) interest?
Non-operating or Non-working Interest - royalty interest owner is not responsible for
the exploration, development, or production.
Working or Operating Interest (WI) - bears all of the costs related to drilling,
completion, testing, exploration, development, and operation of a property - share
of revenue is the amount that remains after deducting the share of the royalty
interest and other nonworking interests.
14. Cowboy Oil Corporation incurred $275,000 in drilling costs prior to deciding
whether to complete the well. Estimated completion costs are $175,000. The
expected net cash flow from the sale of the oil and gas from this well are $300,000.
Should the well be completed?
Chapter 2
1. List the costs that are treated the same (i.e. capitalized or expensed) under
successful efforts and full cost accounting. List the costs that are treated
differently.
ITEM
Acquisition Cost
G&G Cost
Exploratory Dry Hole
Exploratory well,

Successful Efforts
Capital
Expense
Expense
Capital

Full Cost
Capital
Capital
Capital
Capital

successful
Development Dry Hole
Development well,
successful
Production costs
Amortization Cost Center

Capital
Capital

Capital
Capital

Expense
Property, field, or
reservoir

Expense
Country

10. McGavin Oil Company incurred the following costs during calendar year 2016
Feb 1 Cost of G&G activities to locate an oil prospect $100,000