Chapter 1

3. List the steps in finding oil and gas

1. Identify area

2. lease or option to lease

3. detailed G&G work to evaluate and test area

4. Data analyzed

5. More seismic studies

6. Well is drilled

7. Justify completing well dependent on sufficient oil and gas

8. Sufficient oil? Well is completed

Insufficient oil? Repeat process new location

4. What is the difference between an operating (working) interest and a nonoperating (nonworking) interest?

Non-operating or Non-working Interest - royalty interest owner is not responsible for the exploration, development, or production.

Working or Operating Interest (WI) - bears all of the costs related to drilling, completion, testing, exploration, development, and operation of a property - share of revenue is the amount that remains after deducting the share of the royalty interest and other nonworking interests.

14. Cowboy Oil Corporation incurred $275,000 in drilling costs prior to deciding whether to complete the well. Estimated completion costs are $175,000. The expected net cash flow from the sale of the oil and gas from this well are $300,000. Should the well be completed?

Chapter 2

1. List the costs that are treated the same (i.e. capitalized or expensed) under successful efforts and full cost accounting. List the costs that are treated differently.

ITEM Successful Efforts Full CostAcquisition Cost Capital CapitalG&G Cost Expense CapitalExploratory Dry Hole Expense CapitalExploratory well, successful Capital CapitalDevelopment Dry Hole Capital CapitalDevelopment well, successful Capital Capital

Production costs Expense ExpenseAmortization Cost Center Property, field, or reservoir Country

10. McGavin Oil Company incurred the following costs during calendar year 2016

Feb 1 Cost of G&G activities to locate an oil prospect $100,000