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Lil Oil Company has a WI in Lease X with the following costs and reserves as of January 1, 20X1.

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 was 20,000 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).

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