Full Cost Capitalize as assets

1
Full Cost Capitalize as assets

• Property Acquisition
• Exploration
• Development
• GG
• Delay rentals
• GA allocated to acquisition, exploration, or
  development

2
Compare FC to SE

• Most costs are treated the same
• FC capitalizes and SE expenses
• GG costs
• Exploratory dry holes
• Delay rentals
• Cost center - for FC costs center is the country,
  including offshore area under the countrys
  jurisdiction

3
Additional Anomalies for FC

• Impairment expenses are capitalized for FC
• Abandonments continue as capitalized costs for FC
• GA allocable to acquisition, exploration, or
  development is capitalized

4
Cost Center - Accounts

• While a country is a single cost center, the
  books and records of the company may be similar
  in detail as a SE company
• Example, management will want costs and revenues
  by lease, well, field, etc.
• IRS will want information by property unit for
  percentage depletion computation.

5
Acquisition Costs

• Similar to a SE company, acquisition costs will
  be charged to unproved property
• Drilling costs are initially charged to wells in
  progress
• If the well is successful, the costs are
  transferred to wells and related equipment and
  facilities
• Unsuccessful wells are transferred to dry hole
  costs -- an asset account for FC

6
DDA for FC Companies

• Use all costs for the cost center and one of the
  two following methods
• Allowable Methods
• Unit of production
• Unit of revenue
• (Capitalized costs at year end)/(Proved
  reserves at beginning of year valued at year end
  prices) X (Production during year valued at
  actual selling prices)
• Dual production issue same as SE

7
DDA for FC

• Amortize costs over proved reserves (developed
  and undeveloped)
• If some proved undeveloped reserves exist,
  estimate future development costs (at current
  prices)
• Also, estimate future dismantlement and
  abandonment costs (net of salvage).

8
Exclusion of Costs - FC

• DDA is based on proved reserves (both developed
  and undeveloped)
• Costs associated with acquisition and evaluation
  of unproved property may be excluded from the
  DDA base.
• However, exploratory dry holes on unproved
  properties must be added to the amortization base.

9
Exclusion of Costs - FC

• All costs for unproved properties may be excluded
  except for
• dry holes
• impairment costs
• abandonment costs
• costs if proved
• any GG not related to specific properties
• All costs for proved properties must be included
  except for major development projects where
  reserves have not yet been determined
• Future dismantlement costs, net of salvage, must
  be included
• Future development costs must be included

10
BEAT texas

• Keep the monkey on Macks back