Problem #7 Humble Oil Company has developed a new well for onshore crude oil production at a total development cost (including estimated reclamation) of US$9.6 million. The well is expected to produce 1,187,500 barrels of crude oil equivalent (BOE) over its estimated 7-year life with an expected production profile as follows: Year 1 Year 2 325,000 BOE 225,000 BOE Year 3 162,500 BOE Year 4 Year 5 143,750 BOE 118,750 BOE Year 6 109,375 BOE Year 7 103,125 BOE Total production 1,187,500 BOE Assuming that Humble Oil would be able to recover $325,000 for the land at the end of its productive life, calculate the following: a) Depletion expense in year 3, under the cost depletion method b) Depletion expense in year 5, under the cost depletion method
Problem #7 Humble Oil Company has developed a new well for onshore crude oil production at a total development cost (including estimated reclamation) of US$9.6 million. The well is expected to produce 1,187,500 barrels of crude oil equivalent (BOE) over its estimated 7-year life with an expected production profile as follows: Year 1 Year 2 325,000 BOE 225,000 BOE Year 3 162,500 BOE Year 4 Year 5 143,750 BOE 118,750 BOE Year 6 109,375 BOE Year 7 103,125 BOE Total production 1,187,500 BOE Assuming that Humble Oil would be able to recover $325,000 for the land at the end of its productive life, calculate the following: a) Depletion expense in year 3, under the cost depletion method b) Depletion expense in year 5, under the cost depletion method
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Using Cost depletion how would I calculate these two values?
Transcribed Image Text:Problem #7
Humble Oil Company has developed a new well for onshore crude oil production at a total development cost (including estimated reclamation) of US$9.6 million.
The well is expected to produce 1,187,500 barrels of crude oil equivalent (BOE) over its estimated 7-year life with an expected production profile as follows:
Year 1
325,000 BOE
Year 2
225,000 BOE
Year 3
162,500 BOE
Year 4
143,750 BOE
Year 5
118,750 BOE
Year 6
109,375 BOE
Year 7
103,125 BOE
Total production
1,187,500 BOE
Assuming that Humble Oil would be able to recover $325,000 for the land at the end of its productive life, calculate the following:
a) Depletion expense in year 3, under the cost depletion method
b) Depletion expense in year 5, under the cost depletion method
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