Answer all three questions:

Question 1:

Stuart Dixon entered into a lease agreement with LERA Oil. Stuart, the royalty owner, retained a 20% NRI in the

lease and LERA the working interest owner holds an 80% NRI and 100% working interest. LERA conveyed 10% of

its WI% to Old Age Properties

In May 2024 sold 2,562 barrels (BBL) of oil at a price per BBL of $85. Valero Marketing, the purchaser, deducted

$16,332.75 in severance tax. Kimble incurred the following lease operating costs:

$9,600 for pumper fees,

$3,500 for chemicals,

$7,200 for water hauling,

$1,440 insurance, and

$15,300 compressor rental

Required:

1. 2. 3. 4. 5. What is the gross revenue to the royalty owner?

What is the net profit to LERA?

What are the total expenses paid by Stuart Dixon?

When recording the sale, how gross oil sales does LERA record?

What is Old Age Properties Net Profit/Loss?

Question 2:

On May 1, 2024, Topeka Oil and Gas signed a lease contract for a lease in Wyoming. A five-year primary term was

specified in the lease contract for a $5,000 delay rental payment per year.

Required:

1. 2. 3. 4. On what day is the first delay rental due?

What is the maximum number of delayed rental payments?

By what date must drilling commence to keep the lease from terminating?

If drilling commences on June 1, 2027, is a delay rental payment due in 2027?

1MBA 6318 Industry-Specific Topics in Accounting

Oil and Gas Accounting Homework - Summer 2024

Question 3:

LERA Oil sold 18,726 BBLs of oil in 2024 and an average price per BBL of $62. Revenue and costs for LERA are

presented below:

Revenue $1,161,012

G&G Costs $75,000

Acquisition Costs $5,000

Exploratory dry holes $725,000

Successful exploratory wells $1,375,000

Development wells, dry $375,000

Development wells, successful $525,000

Production facilities $125,000

Production costs $75,000

Successful Efforts Full Cost

Amortization for 2024 150,000 $ 175,000 $

Accumulated DD&A 275,000 $ 325,000 $

Required - You will need to prepare and submit an Income Statement and Balance Sheet and answer the

following questions.

1. 2. Using the SE Method of accounting

a. What is LERA's

b. What are LERA's total expenses?

c. What are LERA's total production costs?

d. What is LERA's Net Income?

e. What are LERA's Net Oil & Gas Assets?

Using the FC Method of accounting

a. What is LERA's

b. What are LERA's total expenses?

c. What are LERA's total production costs?

d. What is LERA's Net Income?

Question 4:

Black Rock Company incurred the following costs during 2024:

February 3 March 9 Cost of G&G activities to locate an oil prospect............................ $120,000

Acquisition costs for a 500-acre lease; lease bonus

$60/acre; other costs incurred in acquiring the property............. $3,000

June 1 Dry-hole costs of an exploratory well........................................... $324,000

June 28 Successful exploratory well costs.................................................. $418,000

August 27 Cost of production facilities such as flow lines and separators.... $225,000

September 5 Production costs........................................................................... $81,000

Required: Prepare journal entries for the above transactions using the Successful Efforts Method of accounting.

2MBA 6318 Industry-Specific Topics in Accounting

Oil and Gas Accounting Homework - Summer 2024

Question 5:

Jackson Oil & Gas incurred the following costs during 2024. Jackson Oil uses the Full Cost Method of Accounting.

January 23 G&G Costs.................................................................................... $82,000

February 1 Lease acquisition costs................................................................. $90,000

April 2 Exploratory dry-hole costs.......................................................... $500,000

April 29 Successful exploratory well costs............................................... $600,000

July 1 Development well costs.............................................................. $200,000

August 29 Production facility costs............................................................. $85,000

September 17 Production costs......................................................................... $49,000

Required: Prepare journal entries for the year ending December 31, 2024, using the SE method of accounting.