Scribd
Upload
53 views

Classwork

MRS Company signed a concession agreement with Nigeria requiring payment of a signing bonus, royalties on gross production, and severance taxes on gross revenue. MRS must also pay all exploration, appraisal, development, and production costs. In 2017, MRS discovered oil, with gross revenue of N8 million and production costs of N1.5 million. Exploration costs are deductible over 5 years and other costs as incurred. The question asks to calculate the gross revenue shared between the parties under the agreement for 2017.

Uploaded by

Folakemi Ogunyemi
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
53 views

Classwork

MRS Company signed a concession agreement with Nigeria requiring payment of a signing bonus, royalties on gross production, and severance taxes on gross revenue. MRS must also pay all exploration, appraisal, development, and production costs. In 2017, MRS discovered oil, with gross revenue of N8 million and production costs of N1.5 million. Exploration costs are deductible over 5 years and other costs as incurred. The question asks to calculate the gross revenue shared between the parties under the agreement for 2017.

Uploaded by

Folakemi Ogunyemi
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

OIL AND GAS ACCOUNTING

Question 1

MRS Company signed a concession agreement with the government of Nigeria. MRS must pay the
government, in U.S. dollars, a N6, 000,000 signing bonus, a royalty of 10% of gross production, and a 6%
severance tax based on gross revenue from the property. MRS must also pay all exploration, appraisal,
development, and production costs. MRS begins exploration and drilling late in 2008, spending N9,
000,000. Oil is discovered and production begun in 2017. Gross revenue was N8, 000,000 and
production costs were N1, 500,000 for that year. Production costs and severance taxes are deductible as
incurred. Exploration and drilling costs are deductible over a 5-year period. The tax income rate is 40%.

Required

Calculate Gross revenue for 2017 that would be shared by the parties under concession agreement.

Question 2

a. Enumerates and explain the various phases of upstream oil and gas operations in Nigeria

b. Give detail account of Historical development of Oil and Gas in Nigeria

Question 3
Lucky Oil Company began operations on March 3, 2018, with the acquisition of a lease in Port
Harcourt. During the first year, the following costs were incurred, DD&A (depreciation, depletion,
and amortization) taken, and the following revenue was earned.
G&G costs . . . . . . . . . . . . . . . . . . ……………. N 30,000
Acquisition costs . . . . . . . . . . . . . . ……………. 50,000
Exploratory dry holes . . . . . . . . . . . ……… .1,200,000
Exploratory wells, successful . . . . . . ………… 400,000
Development costs . . . . . . . . . . . . . …………. 200,000
Production costs . . . . . . . . . . . . . . . …………… .25,000
DD&A expense . . . . . . . . . . . . . . . ………………. 40,000 (SE) 90,000 (FC)
Revenue . . . . . . . . . . . . . . . . . . . . . ……………..100,000
Required
Calculate the impact of the FC and SE accounting methods on the financial statements of Lucky
Company
Question 4
Given the following costs for Lease A, all incurred during 2018, prepare income statements and
unclassified partial balance sheets for a successful-efforts company and a full cost company.
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . N 30,000
G&G costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Exploratory dry holes . . . . . . . . . . . . . . . . . . 1,500,000
Successful exploratory holes . . . . . . . . . . . … 350,000
Development wells, dry . . . . . . . . . . . . . . . 200,000
Development wells, successful. .. . . . . . . . 475,000
Cost of production facilities. .. . . . . . . . . . . 250,000
Production costs . . . . . . . . . . . . . . . . . . . . . . 60,000
DD&A* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 (SE) 125,000 (FC)
Accumulated DD&A . . . . . . . . . . . . . . . . . . . 150,000 (SE) 360,000 (FC)
Revenue from sale of oil . . . . . . . . . . . . . . . . 225,000

You might also like