Successful Efforts vs.

Full Cost Accounting

($ in Millions)

Assumptions:

Revenue: $ 1,000 Production: 150

Property Acquisitions: 50 General & Administrative: 50
Dry Holes: 200 DD&A - Successful Efforts: 200
Successful Exploration: 100 DD&A - Full Cost: 300
Development: 200 Tax Rate: 40%

Successful Efforts - Income Statement Full Cost - Income Statement

Revenue: $ 1,000 Revenue: $ 1,000

Expenses: Expenses:
Production: 150 Production: 150
Exploration: 200 Exploration: -
Depreciation, Depletion & Amortization: 200 Depreciation, Depletion & Amortization: 300
General & Administrative: 50 General & Administrative: 50
Total Expenses: 600 Total Expenses: 500

Operating Income: $ 400 Operating Income: $ 500

Income Tax Expense: 160 Income Tax Expense: 200

Net Income: $ 240 Net Income: $ 300

Successful Efforts - Balance Sheet PP&E Full Cost - Balance Sheet PP&E

Starting Net PP&E Balance: $ - Starting Net PP&E Balance: $ -

Property Acquisitions: 50 Property Acquisitions: 50
Exploration: 100 Exploration: 300
 Development: 200 Development: 200
Depreciation, Depletion & Amortization: (200) Depreciation, Depletion & Amortization: (300)
Net PP&E: $ 150 Net PP&E: $ 250
Successful Efforts vs. Full Cost Accounting - Practice Example
($ in Millions)

Assumptions:

Revenue: $ 5,000 Production: 1,000

Property Acquisitions: 500 General & Administrative: 500
Property Sales: 300 Stock-Based Compensation: 300
Dry Holes: 1,500 DD&A - Successful Efforts: 1,000
Successful Exploration: 300 DD&A - Full Cost: 1,500
Development: 1,200 Tax Rate: 35%

Successful Efforts - Income Statement Full Cost - Income Statement

Revenue: $ 5,000 Revenue: $ 5,000

Expenses: Expenses:
Production: 1,000 Production: 1,000
Exploration: 1,500 Exploration: -
Depreciation, Depletion & Amortization: 1,000 Depreciation, Depletion & Amortization: 1,500
Stock-Based Compensation: 300 Stock-Based Compensation: 300
General & Administrative: 500 General & Administrative: 500
Total Expenses: 4,300 Total Expenses: 3,300

Operating Income: $ 700 Operating Income: $ 1,700

Income Tax Expense: 245 Income Tax Expense: 595

Net Income: $ 455 Net Income: $ 1,105

Successful Efforts - Balance Sheet PP&E Full Cost - Balance Sheet PP&E

Starting Net PP&E Balance: $ - Starting Net PP&E Balance: $ -

 Property Acquisitions: 500 Property Acquisitions: 500
Property Sales: (300) Property Sales: (300)
Exploration: 300 Exploration: 1,800
Development: 1,200 Development: 1,200
Depreciation, Depletion & Amortization: (1,000) Depreciation, Depletion & Amortization: (1,500)
Net PP&E: $ 700 Net PP&E: $ 1,700