Lil Oil Company, a successful efforts company, has a WI in Lease X with the following costs
Question:
Lil Oil Company, a successful efforts company, has a WI in Lease X with the following costs and reserves as of January 1, 20X1.
Proved PropertyIDC & LWE
Asset$100,000$500,000
Accumulated DD&A (40,000)(200,000)
Net Carrying Value$60,000$300,000
Estimated proved reserves 1/1/20X1220,000 bbls
Estimated proved developed reserves 1/1/20X1140,000 bbls
No additional drilling occurred during the year.
(a)During the first quarter of 20X1, production was 20,000 bbls. Compute DD&A expense for the first quarter of 20X1.
(b)On June 30, 20X1, a new reserve report estimated the following reserves as of June 30, 20X1
Proved reserves250,000 bbls
Proved developed reserves150,000 bbls
Production for the second quarter of 20X1 was 25,000 bbls. Compute DD&A expense for the second quarter of 20X1 assuming that Lil Oil Company uses the new reserve report to compute DD&A expense for the entire second quarter.
(c)Under the Entire Quarter Method of calculating DD&A in a quarter with a reserve revision,discuss the impact to net income in a year with an upward revision in the reserves estimate, and (2) discuss the impact of a net income in future years assuming no additional revisions.
Expert Answer:
a To compute the DDA expense for the first quarter of 20X1 we need to determine the depletion rate per barrel Depletion Rate per Barrel Net Carrying V... View the full answer
