Petroleum accounting section 1,2 Assistant lecture Alya elfedawy

Classification of cost Preliminary costs Acquisition costs Production costs Exploration costs Development costs

a. cost of acquiring the preliminary exploring 1. Preliminary costs a. cost of acquiring the preliminary exploring b. geological and geophysical G&G 2. Acquisition cost : a. lease bonuses b. brokers' fees c. recording fees d. legal costs e. other costs such as costs related obtaining mineral rights.

3. Exploration costs : a. Exploratory dry hole b 3. Exploration costs : a. Exploratory dry hole b. Exploratory well, successful 4. Development costs: a. Development dry hole b. Development well, successful 5. Production cost

Accounting treatment for costs Current year a lot of year Expenses Capitalized

Accounting treatment for petroleum activates Successful efforts Full cost

Treatment under full costing (FC) Treatment under successful efforts (SE) Cost item N Capitalize (C) Expense (E) geological and geophysical (G & G) 1 C Acquisition cost 2 E Exploratory dry hole 3 Exploratory well, successful 4 Development dry hole 5 Development well, successful 6 Production cost 7

EX: GAS petroleum co. acquired a lease in the western desert in February 2005. The company incurred the following costs during 2005. 140,000 G & G cost. 250,000 Lease (acquisition cost). 6,000,000 exploratory dry holes. 2,600,000 exploratory wells, successful. 4,000,000 development dry holes. 1,200,000 development wells, successful. 120,000 production cost.

Required 1- Classify each cost item regarding the five stage. 2- Compare between each accounting method regarding each cost item (Which cost is expense and capitalize). 3- Calculate the total of expense and capitalize cost under each method.

Successful efforts (SE) Full costing (FC) Successful efforts (SE) Stage Cost item Capitalize (C) 140,000 Expense (E) 70,000 Preliminary costs geological and geophysical (G & G) C 250,000 125,000 Acquisition cost Lease (acquisition cost) 6,000,000 E 3,000,000 Exploration costs Exploratory dry hole 2,600,000 1,300,000 Exploratory well, successful 4,000,000 2,00,000 Development costs Development dry hole 1200,000 600,000 Development well, successful 120,000 60,000 Production cost

1) successful efforts: A) Total expense cost= 140,000 + 6,000,000 + 120,000 =6,260,000. B) Total capitalize cost= 250,000 + 2,600,000 + 4,000,000 + 1,200,000= 8,050,000.  2) Under full cost A) Total expense cost= 120,000. B) Total capitalize cost= 140,000 + 250,000 + 6,000,000 + 2,600,000 + 4,000,000 + 1,200,000= 14,190,000

H.W : Petro get company acquired a lease in the western desert in april 2007. The company incurred the following costs during 2007. 80,000 G&G cost 120,000 lease 2500,000 exploratory dry holes 1,000,000 exploratory wells, successful. 1000,000 development dry holes. 300,000 development wells, successful. 50,000 production cost.

Required: 1- Classify each cost item regarding the five stage Required: 1- Classify each cost item regarding the five stage. 2- Compare between each accounting method regarding each cost item (Which cost is expense and capitalize). 3- Calculate the total of expense and capitalize cost under each method