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

Exercise 5

Buckley Oil Company, a successful efforts company, began operations January 1,
20XA. Assuming the following facts about Buckley's first two years of operations,
prepare the required disclosures under SFAS No. 69. All reserve and production
quantities apply only to Buckley Oil's interest. Ignore the computations for future
income tax.
12/31/20xA
Item Lease q Lease t
a. Acquisition costs $ 50,000 $ 40,000
b. G&G costs $ 30,000 $ 35,000
c. Drilling costs:
IDC $150,000 $100,000
Tangible 80,000 10,000
Life of equipment 10 years
d. Drilling results: Proved reserves Incomplete
e. Estimated production of estimated 20XB- 7,500
proved reserves, bbl 20XC-15,000
20XD-10,000
f. Reserve estimate, bbl 12/31/XA 20XA- 32,500
Proved, at 12/31/(decreases by 20XB- 25,000
estimated production) 20XC- 10,000
Proved developed at 12/31/XA (decreases 20XA- 27,500
by estimated production and increases 20XB- 25,000
as a result of estimated development) 20XC- 10,000
g. Estimated tangible development costs
(life, 10 years) 20XB-$25,000
h. Estimated decommissioning costs 20XD-$15,000
i. Current market price of oil $ 52/bbl
j. Estimated future production costs based
on year-end costs 20XB-$ 75,000
20XC- 150,000
20XD- 100,000
k. Estimated current production costs /bbl $10/bbl Assume a tax rate of 40%, and that Buckley does not qualify for percentage depletion
because it is an integrated producer. Ignore deferred taxes and the alternative minimum
tax. (What is the significance of no estimated future development costs on Lease Q and
Lease T as of 12/31/XB?)