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Fundamentals of Oil & Gas Accounting 5th Edition by Rebecca Gallun, Charlotte Wright
Edition 5ISBN: 9781630181031Fundamentals of Oil & Gas Accounting 5th Edition by Rebecca Gallun, Charlotte Wright
Edition 5ISBN: 9781630181031 Exercise 1
Mr. Zeman owns the mineral rights in a property in Grant County, Oklahoma. He
leases the property to Force Petroleum, reserving a 1/5 royalty. Force drills a successful
well and begins producing oil. Revenue from the first year of operations totaled $20,000
and costs of development and operation totaled $150,000. How much revenue will each
party receive? How much of the costs will each party pay?
leases the property to Force Petroleum, reserving a 1/5 royalty. Force drills a successful
well and begins producing oil. Revenue from the first year of operations totaled $20,000
and costs of development and operation totaled $150,000. How much revenue will each
party receive? How much of the costs will each party pay?
Explanation
Verified
Verified
Working interest and royalty interest
Consider this case, Z own mineral rights in G County. However he decided to lease the same to F petroleum ascertaining a royalty of 1/5. Since F started drilling and development of the well for producing the oil and incurred a cost of $150,000. Therefore the revenue being received by Z and F is shown below:
Thus it is ascertained that the cost incurred by F petroleum is $150,000 on the other hand incurred by Z is nil since he possess non working interest. Hence the share of Z in revenue amounts to 
and the share of F petroleum in the revenue amounts to 
Consider this case, Z own mineral rights in G County. However he decided to lease the same to F petroleum ascertaining a royalty of 1/5. Since F started drilling and development of the well for producing the oil and incurred a cost of $150,000. Therefore the revenue being received by Z and F is shown below:
Thus it is ascertained that the cost incurred by F petroleum is $150,000 on the other hand incurred by Z is nil since he possess non working interest. Hence the share of Z in revenue amounts to and the share of F petroleum in the revenue amounts to 
Fundamentals of Oil & Gas Accounting 5th Edition by Rebecca Gallun, Charlotte Wright
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