Questions and Answers of Fundamental Accounting

Marvel Oil Company enters into a concession agreement with the British government.Marvel Oil pays the government a $10,000,000 (US) signing bonus and agrees to pay the government royalties of 8% of
In a _____________, the contractor pays all of the costs and assumes all of the risks related to exploration, appraisal, development, and production activities. If production is attained, the
In some contracts the contractor is required to set aside a portion of its share of production for sale in the local market. This provision is referred to as______________.a. Capital upliftb. Profit
_______________ is an incentive offered by the government to encourage the contractor to maximize investment.a. Cost oilb. Profit oilc. Capital upliftd. Overriding royaltye. Domestic market obligation
Alpha Oil signed a PSC with the government of Indonesia giving it the exploration rights to Block
In addition to the PSC, what other type of contract might Alpha have in relation to Block 2?a. Lease agreementb. Risk-service contractc. Joint operating agreementd. Fixed margin agreemente.
Crank Oil (a successful efforts company) drilled a well in Azerbaijan during the exploration phase of their PSC. The exploratory well was a dry hole. However, according to the PSC, the cost of
Any petroleum available for cost recovery in a particular year that is in excess of the amount necessary for cost recovery is referred to as _______________.a. Profit oilb. Cost recovery oilc. Excess
Which of the following is (are) not an example(s) of a recoverable cost?a. Development bonusb. Overheadc. In-country office costsd. G&G costse. Development dry-hole costs
The SEC generally does not permit disclosure of proved reserves for operations occurring under which type(s) of contract(s)?a. Leasesb. PSCsc. Service agreementsd. Concession agreementse. All of these
Define the following terms:fault trapanticlinesalt domeporositypermeability
Define the following terms:day-rate contractfootage-rate contractturnkey contracthorizontal drilling
Explain the following:petroleum reservoirprimary recoverysecondary recoverytertiary recovery
List the steps in finding oil and gas.
Define the following:economic interest in oil and gasmineral rightsmineral interestroyalty interestworking interestoverriding royalty interestproduction payment interest
What is fracking?
What is the difference between a conventional and a nonconventional reservoir?
Define and discuss the important provisions of the typical oil and gas lease.
What is synthetic crude oil?
Which of the following would not be a mineral interest?a. Production payment interestb. Working interestc. Overriding royalty interestd. Surface rights intereste. Net profits interestf. Royalty
Answer the following questions related to horizontal drilling:a. What are the conditions under which horizontal drilling operations would be considered?b. Would horizontal drilling operations be more
Discuss the following:well spacing drilling unit drilling permit
Discuss the factors that generally must be present for a petroleum reservoir to be economically or commercially productive.
Explain the following terms:fracturing acidizing tripping in/out well casing
Describe the primary types of geological and geophysical studies.
Explain the role of a landman in oil and gas operations.
What is the difference between oil shale and shale oil?
Define:vertical well directional well horizontal well
Define:deepwater drilling ultra deepwater drilling
On January 1, 2018, Ark Oil Company signed a lease contract for a lease in Texas. A four-year primary term was specified in the lease contract.a. On what date is the first delay rental payment due?b.
Upon signing a lease agreement, Miss Olivia received a one-time payment of $3,000. One year later because the oil company had not yet drilled a well, Miss Olivia received a payment of $200. During
Cowboy Company drilled a well to targeted depth, incurring costs of $700,000.Completion costs are estimated to be $200,000. The sale of oil from the well is estimated to generate net cash flows of
Miss Hawkins owns the mineral rights only in a property in Garvin County, Texas. She leases the property to Garth Petroleum, reserving a 1/5 royalty. Garth Petroleum drills a successful well and
Ethan Oil Corporation owns 100% of the working interest in an oil and gas lease located in a remote area of Wyoming. The royalty on the lease is 1/8. Ethan Oil does not have the funds to develop the
Tyler Energy owns a 100% working interest in a tract of land in Texas. Lacking the funds to develop the property, Tyler Energy assigns Gravity Oil 30,000 barrels of oil to be paid out of 1/7 of its
Aggie Company obtained a lease on August 1, 2018. The lease contract specifies a three-year primary term.a. Drilling operations began on June 1, 2019, and continued until October 15, 2019, when the
A(n) _______________ is an interest created by a lease agreement whereby the owner is responsible for paying all of the cost of exploring, drilling, developing, and producing the property.a.
Which of the following is not a mineral interest?a. Production payment interestb. Working interestc. Overriding royalty interestd. Surface rights intereste. Net profits interestf. Joint working
Mr. Zeman owns the mineral rights in a property in Yale County, Oklahoma. He leases the property to Force Petroleum, reserving a 1/5 royalty. Force drills a successful well and begins producing oil.
A delineation well is typically classified as a(n)_____ well?a. Developmentb. Exploratoryc. Extensiond. Wildcate. None of these
A(n) ________ exists when multiple working interest owners share and share alike in any and all reserves as well as the minerals severed from the earth.a. Overriding royalty interestb. Carved out
What accounting treatment is given to the following costs under successful efforts?acquisition costsexploration costsdevelopment costsproduction costs
The successful efforts method of accounting for oil and gas operations is considered to follow generally accepted accounting principles as pronounced by the FASB. Explain.
Indicate whether the following costs should be expensed (E) or capitalized (C)depending on whether the company uses successful efforts or the full cost method of accounting. Acquisition costs G&G
Unger Petroleum Company incurred the following costs during 2018:REQUIRED: Prepare journal entries for the above transactions using the successful efforts method of accounting. March 9 February 3
Unger Petroleum Company incurred the following costs during 2018:REQUIRED: Prepare journal entries for the above transactions using the full cost method of accounting. February 3 Cost of G&G
Libby Petroleum incurred the following costs during 2019:Libby uses the full cost method of accounting.REQUIRED: Prepare the journal entries for the year-end December 31, 2019. January 23 G&G Costs..
The following costs for Davison Lease were all incurred during 2020.*Depreciation, depletion, and amortization REQUIRED: Prepare the 2020 income statements and unclassified partial balance sheets
The following costs were incurred by Force Petroleum Company during the fiscal year ending May 31, 2020.REQUIRED: Prepare journal entries for the above transactions, assuming that Force Petroleum
Revenue and costs for Gravity Petroleum for the year 2019 are presented below:REQUIRED: Prepare income statements and unclassified balance sheets for a successful efforts (SE) company and a full cost
Libby Petroleum, a successful efforts company, incurred the following costs during 2019:REQUIRED: Prepare the journal entries for the year-end December 31, 2019. January 23 February 1 April 2 April
What are the four broad types of accounting that must be done by E&P companies?
According to the FASB, who are the primary users of externally published financial statements?a. Investors and creditorsb. Tax authoritiesc. Internal company managersd. Working interest ownerse. None
In the United States, who has the authority to prescribe accounting practices and procedures for all public oil and gas companies and to prescribe the form and content of financial reports?a.
COPAS has no statutory authority. However, if a COPAS model accounting procedure is included in a contract, the participating companies are contractually bound to comply with the provisions of the
Which of the following type(s) of accounting uses the successful efforts method?a. Financialb. Taxc. Contractd. Manageriale. All of these
After the FASB endorsed the successful efforts method, it was also adopted by the IRS and forms the basis of current US income tax regulations.a. Trueb. False
How does reserve information affect financial accounting?
What is the Petroleum Resources Management System (PRMS)?
Are PRMS definitions the same as those adopted by the SEC?
Can PRMS definitions be used by companies traded on the US stock exchanges?
Why is it important for accountants to be familiar with PRMS definitions?
The SEC permits disclosure of which of the reserve categories?
Define deterministic and probabilistic estimation methodologies.
Reserves in place do not change as economic conditions and technology change.a. Trueb. False
Fill in the blanks:The amount of petroleum in place is subdivided between that quantity which, on any given date, is deemed to be commercial or economic (i.e., where the estimated selling price
What is the difference between contingent resources and prospective resources?
What prices and costs are used in applying the term “current economic conditions”?
What are the two subcategories of proved developed reserves?
What are the two subcategories of proved developed nonproducing reserves?
List the three reasons that proved developed reserves may be classified as shut-in.
Why might proved developed reserves be classified as behind-the-pipe reserves?
Distinguish between proved developed reserves and proved undeveloped reserves.
The SEC requires that, in order to be classified as proved undeveloped reserves, there must be a plan in place to develop those reserves within a specific period of time. That time period is:a. Three
If reserves do not meet the requirements to be classified as proved developed or proved undeveloped, they must be classified as:a. Unprovedb. Contingent reservesc. Contingent resourcesd. Possible
Unproved reserves can be subdivided into two categories. These categories are:a. Proved and probableb. Probable and possiblec. Behind-the-pipe and shut-ind. Probable developed and undevelopede. None
List some of the uses of reserve reports.
Brad Duersch owns the mineral rights in land in South Texas, which he leased to Twillo Oil Company. In that agreement, Duersch received a 25% royalty interest.Later, Twillo Oil Company entered into a
Discuss accounting for seismic costs. Be sure to include in your answer an explanation of the situations in which companies may opt to capitalize seismic costs and whether or not this practice is in
Define and give examples of support equipment and facilities. Would a particular piece of support equipment or a single facility be used to support only one lease or field, or could it be used to
Mabel Energy Company acquired a 200-acre lease. However, due to a decline in oil prices, Mabel decided not to drill on the lease during the first year and therefore made a delay rental payment of
Discuss why each party to a test-well contribution situation would enter into the transaction.
Define the following:shooting rightsG&G costscarrying costsdry-hole contributionbottom-hole contribution
Marx Oil Company acquired the exploration rights on 20,000 acres at $4/acre and then hired an independent geological firm to conduct the initial G&G work for $83,000. As a result of the G&G work,
Jerin Petroleum acquired a lease on March 1, 2019. Being short of funds, Jerin Petroleum did not begin drilling operations during the first year of the primary term and on March 1, 2020, made a delay
The following costs incurred by the exploration department of Matrix Energy Corporation during 2018.REQUIRED: Give the entries to record these transactions. Shooting rights.... Bottom-hole
Bartz Oil Company acquired the shooting rights on 25,000 acres at a cost of $1.00/acre on June 1, 2019. Bartz contracted and paid $98,000 for a reconnaissance survey during 2019. As a result of this
Optimistic Oil Company purchased seismic equipment on March 1, 2017, costing$120,000. The seismic equipment was used in G&G operations for the remainder of the calendar year (2017).REQUIRED: Compute
During 2018, Aggie Petroleum made the following transactions relating to testwell contributions:a. Contracted with Garth Energy Corporation, agreeing to pay $80,000 if a well was drilled on Garth’s
Clarence Oil Company conducted G&G activities on leases owned by Lamar Oil Company and Universal Oil Company. Each agreement provides for Clarence Oil Company to receive a 25% working interest in
Gravity Energy obtained a three-year lease on 2,000 acres on May 2, 2017 that contained a $4/acre delay rental clause. Drilling operations were started on June 15, 2019 and completed on October 16,
Steven Energy Company entered into the following test-well contribution agreements:a. On June 2, 2018, a bottom-hole contribution agreement was obtained requiring a payment of $80,000 when the
Williams Oil Company purchased seismic equipment costing $100,000 on January 1, 2018. The equipment was used in G&G operations for the calendar year 2018. The equipment has an estimated life of 10
During 2019, Chadax Oil Company obtained the following leases:After obtaining these leases, Chadax Oil Company incurred shooting rights on Leases A and C at $1.50/acre and incurred the following
Halax Oil and Gas Corporation agreed to conduct G&G studies and other exploration activities on a lease owned by Bart Energy Company in exchange for an interest in the property if proved reserves are
Which of the following are defined as exploration costs?a. Drilling and equipping exploratory wellsb. Drilling exploratory-type stratigraphic test wellsc. Dry-hole contributionsd. Bottom-hole
Costs paid on or before the anniversary date of the lease during the primary term in order to delay drilling operations for a year are referred to as ___________.a. Ad valorem costsb. Shooting
A ___________ is paid only if a well is dry.a. Bonusb. Dry-hole contributionc. Bottom-hole contributiond. Delay contributione. None of these
Explain the primary functions of finance.
Explain the primary functions of accounting.

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