Lil Oil Company has a WI in Lease X with the following costs and reserves as of January 1, 20X1.
Property IDC & Eqpt
Asset 100,000 500,000
Accumulated DD&A ( 40,000) ( 200,000)
Net carrying value 60,000 300,000
Estimated proved reserves 1/1/20X1 220,000 bbls
Estimated proved developed reserves 1/1/20X1 140,000 bbls
No additional drilling occurred during the year.
(a) During the first quarter of 20X1, production was20,000 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 reserves 250,000 Bbls
Proved developed reserves 150,000 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) Discuss how production of both oil and gas affects the DD&A computation (No computation is necessary).