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All G&G studies, even those use the best techniques cannot guarantee that oil
and gas exist in commercial quantities to be produced economically .
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In the case of th devlopment wells 22% of the devlopment wells drilled
in th united ststes in 1975 did not result in commercial production .
The oil and gas industry needs big investments
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Acquisition of property :
Acquisition means the procurement of the legal
right to explore
for and produce discovered
minerals within a specific area
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Oil and Gas Leases :
A petroleum company cannot conduct any activity before obtaining
the rights to drill and produce oil and gas . These rights are usually acquired an oil and gas lease agreements .
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Successful efforts Accounting (SE)
we discussed now the four basic type of costs
they are : acquisition costs , exploration costs , development costs , and production costs .
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The acquisition costs
Acquisition costs incurred are capitalized as unproved property.
If proved
reserves are found these costs are added to the
" amortization base " the costs center is a reservoir , a field ,
Or a lease . the costs accumulated in the amortization base
Are amortized on the basis of production .
If proved reserves are not found , the property is impaired
Or abandoned , and the costs are charged to the income statement
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The exploration costs
The costs include two categories :
A ) predrilling exploration
costs are to be charged to expense
B ) costs of drilling exploratory wells treatment as follow :
_ If the well has found proved reserves become capitalized expense.
_ If the well has not found proved reserves become expense .
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the devolpment costs :
The costs of drilling a devolpment well is capitalized
regardless Of the outcome of the well .
these costs are added to theAmortization base to be amortized with other capitalized Costs on the basis of production .
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the production costs
Production costs are those costs incurred to operate and
Maintains
an enterprise's wells and related equipment and
Facilities, including depreciation of support equipment and
Facilities and other costs directly identifiable with the
Operation and maintains of those wells and related equipment
And facilities.
They become part of the costs of oil and gas produced .
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Depreciation, depletion , and amortization of capitalized
Acquisition, exploration , and development costs also
become Part of the costs of oli and gas produced along with Production ( lifting ) costs .
All production costs are expensed , i.e. its charged To the income statement for the period .
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