UNLIKELY CORPORATION HAS A WORKING INTEREST IN LEASE \"A\". AS OF 12/31/15, THE

Question

UNLIKELY CORPORATION HAS A WORKING INTEREST IN LEASE "A". AS OF 12/31/15, THE LEASE HAD RESERVES AS FOLLOWS: PROVED DEVELOPED RESERVES, OIL:             120,000 BBLS PROVED RESERVES, OIL:             180,000 BBLS ACCOUNT BALANCES AS 12/31/15 WERE AS FOLLOWS: PROVED PROPERTY $         120,000 LESS: ACCUMULATED DD&A - PROVED PROPERTY              (40,000) NET PROVED PROPERTY $           80,000 WELLS AND EQUIPMENT (TANGIBLE EQUIPMENT) $      1,600,000 LESS: ACCUMULATED DD&A --WELLS AND EQUIPMENT            (300,000) NET WELLS AND EQUIPMENT $      1,300,000 A NEW RESERVE ESTIMATE ON OCTOBER 31, 2016 WAS AS FOLLOWS: PROVED DEVELOPED RESERVES, OIL:             100,000 BBLS PROVED RESERVES, OIL:             150,000 BBLS CALCULATE DD&A FOR EACH QUARTER OF 2016, ASSUMING THE FOLLOWING PRODUCTION, USING BOTH METHODS DISCUSSED IN CLASS FOR REVISING DD&A DUE TO A CHANGE IN RESERVES. QUARTER PRODUCTION 1 10,000 BBLS 2 12,000 BBLS 3 14,000 BBLS OCTOBER 2,000 BBLS NOVEMBER 4,000 BBLS DECEMBER 6,000 BBLS

Explanation / Answer

Solution :-

First we need to determine Proved Reserves & Proved developed Reserves at the begining of the year

a. Est. proved Reserves at the end + current years production

= 150000 + (10,000+12,000 + 14,000 + 2,000 + 4,000 + 6,000)

= 198000

a. Est. proved Developed Reserves at the end + current years production

= 100000 + (10,000+12,000 + 14,000 + 2,000 + 4,000 + 6,000)

= 148000

now DD Rate =

for Proved Property = Current Year Production / Proved reserves at the begining

= 48,000 / 198,000

= 24.2%

for WELLS AND EQUIPMENT (TANGIBLE EQUIPMENT= Current Year Production / Proved developed reserves at the begining

= 48,000 / 148,000

= 32.4%

Now DDA Quartar wise

Net Proved Property Beginning Rate (annual) DDA per qarter Closing Net Proved Property   Quartar 1 80000 0.242424 4848.485 75151.52 Quartar 2 75151.52 0.242424 4554.637 70596.88 Quartar 3 70596.88 0.242424 4278.599 66318.28 Net WELLS AND EQUIPMENT Begining Rate (annual) DDA per qarter Net WELLS AND EQUIPMENT Closing Quartar 1 1300000 0.324324 105405.4 1194595 Quartar 2 1194595 0.324324 96859.02 1097736 Quartar 3 1097736 0.324324 89005.59 1008730

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