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

Exercise 6

Assume that Protex Company, a U.S. company, is involved in petroleum operations in
Thailand. Protex Company has a 40% WI, while the Local Oil Company has a 60%
WI. Annual gross production is to be split in the following order:
a. Royalty is 15% of annual gross production and is to be paid in-kind
b. VAT is equal to 5% of annual gross production and is to be paid in-kind
c. Cost oil is limited to 50% of gross production, with costs to be recovered in the
following order:
"1) Operating expenses paid 40% by Protex Company and 60% by Local
Oil Company."
2) Exploration costs (paid entirely by Protex Company).
"3) Development costs: after completion of exploration, Local Oil Company opted
to participate at 60%. Therefore, development and operating costs were paid
40% by Protex Company and 60% by Local Oil Company.
d. Any excess remaining after cost recovery become profit oil:"
1) Of the profit oil, 25% goes to the government.
"2) The remainder is split between Protex and Local Oil Company based on their
working interests.
For 2014, assume the following:
• Recoverable operating costs total $2,600,000.
• Exploration costs unrecovered to date total $260,000,000.
• Development costs unrecovered to date total $1,300,000,000.
• Any costs not recovered in the current year may be carried forward to be recovered
in future years.
• The annual gross production for the year is 10,000,000 barrels of oil.
• The agreed upon price is $65/bbl.
REqUIRED: Allocate the production between the parties."