Question

I just need the sucessful efforts method for this!

Full Cost versus Successful Efforts Method
During 2016, The Alberta Oil & Gas Company began an exploration project in Montana. The company had paid $500,000 for the drilling rights on a tract of 500 acres of land.

The company then spent another $40,000 building roads and containment ponds. The project called for 8 exploratory wells to be drilled at an expected cost of $100,000 per well.

The first 6 wells drilled were found to be “dry” (lacking commercially viable quantities of oil or gas); however, the last 2 wells drilled contained commercially viable quantities of oil condensate.

Consequently, 2 additional development wells were drilled at a cost of $120,000 per well.

(a) Calculate the capitalized cost of Alberta’s oil reserves under:

The full cost method	$Answer
The successful efforts method	$Answer

Answer 1

Full cost method
Particulars	Amount ($)	Amount ($)
Drilling right costs	500,000.00
Building road cost	40,000.00
Drilling cost of first six well (100000 x 6)	600,000.00
Drilling cost of last two wells (120000 x 2)	240,000.00
Capitalized cost of Alberta's oil reserves		1,380,000.00
Successful effort method
Particulars	Amount ($)	Amount ($)
Drilling right costs	500,000.00
Building road cost	40,000.00
Drilling cost of last two wells (120000 x 2)	240,000.00
Capitalized cost of Alberta's oil reserves		780,000.00