Question

7. A company may have interest in an area such as an offshore block that is next to another block, both of which are believed to overlie the same reservoir. It likely would want to obtain information about the neighboring block as the owner of that block conducts drilling activities, this is called Test-Well Contributions. T/F 8. To obtain information about the adjacent block, owners of adjacent blocks frequently will enter into a test well contribution agreement. These agreements are normally bottom-hole, dry- hole or acreage agreements. T/F 9. In a Dry-Hole Agreement, Company ABC agrees to pay Company DEF a certain sum if the well being drilled by Company DEF reaches a specified depth or beyond. In return, Company DEF will provide Company ABC with all the data obtained as the well is drilled. If the well does not reach the specified depth, Company ABC does not make a payment to Company DEF but the data will normally still be provided to Company ABC. T/F 10. In a Bottom-Hole Agreement, Company ABC agrees to pay Company DEF a specified sum if the well being drilled by Company DEF is dry. If the well is not dry, Company ABC does not make a payment to Company DEF but the data will normally still be provided to Company ABC. T/F 11. Delay rentals are costs paid on of before the anniversary date of the lease during the primary term in order to delay drilling for a year. T/F

Answer 1

7. Test well contributions means contributions or payments made to the owner of adjacent block on the same reservoir to share the information/results of the drilling activities conducted by the adjacent block owner. Hence, the given statements are TRUE.

8. TRUE. To obtain information about the adjacent blocks, owners enter into agreements called normally as Bottom-hole and Dry-hole agreements, etc.. depending on the type of information agreed to be shared.

9. FALSE. In a Dry-hole agreement, payment is made only if the drilled well is dry or unsuccessful.

10. FALSE. In a Bottom-hole agreement, payment is made only if the drilling is done to the agreed depth, irrespective of the result.

11. TRUE. Delay rentals are paid on or before the anniversary date of the lease by the lessee to the lessor during the primary term in order to extend the lease period.

1. TRUE. A company will research the area extensively using modern techniques and methods to analyze the underground formation in search for hydrocarbons after securing rights to explore a defined area.

2. TRUE. Geological and geophysical tests may take the form of the seismic studies that measure the reflection of sound waves which are shot from the surface from beneath the surface from which they map the underground formation.

3. TURE. A company may perform geological testing activity in excahange of cash payment with the owner or government called purchasing shooting rights, without entering into an agreement to get drilling rights.

4. TRUE. The costs of geological and geophysical studies, including seismic and magnetic studies are expensed as and when incurred U.S. GAAP. These are expensed ad G&G Costs.

5. FALSE.

Entry under US GAAP is as follows:

G&G Expense 1000

Accounts Payable 1000