Fundamentals of Oil & Gas Accounting 5th Edition by Rebecca Gallun, Charlotte Wright

Exercise 17

Indicate which items are to be capitalized (C), expensed (E), and part capitalized and
part expensed (C/E) for successful efforts, full cost, and tax accounting. Assume the
maximum tax deductions are taken. Successful tax
Item Efforts Full Cost Lessee
Option to lease
Water disposal well (intangible costs)
Wells-in-progress-proved property
a. Intangible costs
b. Tangible costs
Wells-in-progress-unproved property
a. Intangible costs
b. Tangible costs
Successful exploratory drilling
a. Intangible costs
b. Tangible costs
Exploratory drilling-dry hole
a. Intangible costs
b. Tangible costs (net of salvage)
Successful development drilling
a. Intangible costs
b. Tangible costs
Development drilling-dry hole
a. Intangible costs
b. Tangible costs (net of salvage)
Deepening a development well to unexplored
depths-dry hole
a. Intangible costs
b. Tangible costs (net of salvage)
Abandonment of well on producing lease (well had
been depreciated separately for tax purposes)
Abandonment of lease (no other nearby leases)
Production costs
Water supply well (intangible costs)
a.Water to be used for development drilling
b. Water to be used for secondary recovery
Exploratory stratigraphic test well-dry
(intangible costs)