Assume that an exploratory well is drilled and hydrocarbons are indicated. However, there is substantial uncertainty regarding
Question:
Assume that an exploratory well is drilled and hydrocarbons are indicated. However, there is substantial uncertainty regarding whether the oil or gas is sufficient to justify recognition of proved reserves. How should the well cost be accounted for?
a. Assuming that the company is making sufficient progress in assessing the reserves and the economic and operating viability of the project, the costs can remain capitalized for a maximum period of one year.
b. The costs can remain capitalized for a maximum period of three years.
c. Assuming the company is making sufficient progress in assessing the reserves and the economic and operating viability of the project, the costs can remain capitalized for a maximum period of three years.
d. Assuming that the company is making sufficient progress in assessing the reserves and the economic and operating viability of the project, the costs can remain capitalized indefinitely.
e. None of these applies.
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