Question

(1) Katten Oil is the operator of Blocks B and C. Katten has a 60% working interest in Block B and a 50% working interest in Block C. A piece of equipment that originally cost $80,000 is transferred from Block B to Block C. The current market price of the equipment new is $88,000. The equipment is in condition B and was already in Condition B when it was first placed on Block B. What accounts will be affected on Katten’s balance sheet? Also state the dollar amount and direction (increase or decrease) of change for each balance sheet account affected.

(2) The Lauren lease has the following working interest owners: Bell Co. 50%, Grand Co. 30%, and Keel Co. 20%. There is a 1/8 royalty on the lease. On June 1, Bell Co., the operator, receives notice that Grand Co. is going non-consent on the drilling of well 32. Bell and Keel agree to carry Grand’s share proportionately. The non-consent penalty is 300%. On November 1, well #2 that was drilled and completed at a cost of $600,000, began producing. The production and operating information for the first two months of production follows:
Month Production Operating Costs Sales Price
Nov.    10,000 bbl             $35,000       $70 bbl
Dec.    15,000 bbl               40,000          75 bbl
a. How much of the total well cost of $600,000 will be paid by Bell and Keel, respectively?
b. What is the full amount recoverable (including penalty) by Bell Co. only, from Grand’s share of net revenue?
c. As of December 31, what is the remaining amount Bell company will recover from Grand’s share of net revenue (the remaining balance recoverable by Bell)?

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Katten Oil

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