Question

Wildhorse Drilling Company has leased property on which oil has been discovered. The oil wells on this property produced 16,300 barrels of oil during the past year that sold at an average sales price of $61 per barrel. Total oil resources of this property

Wildhorse Drilling Company has leased property on which oil has been discovered. The oil wells on this property produced 16,300 barrels of oil during the past year that sold at an average sales price of $61 per barrel. Total oil resources of this property are estimated to be 272,000 barrels.

The lease provided for an outright payment of $557,600 to the lessor (owner) before drilling could be commenced and an annual rental of $27,710. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Wildhorse (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is $35,360.

From the provisions of the lease agreement, compute the cost per barrel for the past year, exclusive of operating costs, to Wildhorse Drilling Company. (Round answer to 2 decimal places, e.g. 4.89.)

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Initial Payment: 557,600 / 272,000 = 2.05

Rental: 27,710 / 16,300 = 1.70

Premium: 5% * $61 = 3.05

Reconditioning of Land: 35,360 / 272,000 = 0.13


Total Cost Per Barrel: 6.93

answered by: Orange
Add a comment
Know the answer?
Add Answer to:
Wildhorse Drilling Company has leased property on which oil has been discovered. The oil wells on this property produced 16,300 barrels of oil during the past year that sold at an average sales price of $61 per barrel. Total oil resources of this property
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Novak Drilling Company has leased property on which oil has been discovered. Wells on this property...

    Novak Drilling Company has leased property on which oil has been discovered. Wells on this property produced 17,330 barrels of oil during the past year that sold at an average sales price of $62 per barrel. Total oil resources of this property are estimated to be 232,200 barrels. The lease provided for an outright payment of $565,000 to the lessor (owner) before drilling could be commenced and an annual rental of $35,595. A premium of 5% of the sales price...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT