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

Exercise 7

Ibis Company enters into a concession agreement with the British government.
Ibis pays the government a $10,000,000 (U.S.) signing bonus and agrees to pay the
government royalties of 8% of gross production and 5% severance tax. Ibis bears all
of the costs associated with exploration, development, and production.
During 2013, Ibis spends $7,000,000 on exploration and drilling costs. Gross revenue
was $5,000,000, and production costs were $2,000,000. The income tax laws allow
deduction of all production costs, with exploration and drilling costs deductible over
a seven-year period. The tax rate is 40%.
REqUIRED: Show how the gross revenue for 2013 would be shared by the parties.