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 of every
barrel of oil removed is to be paid annually to the lessor. In
addition, Novak (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
$33,900.
From the provisions of the lease agreement, compute the cost per
barrel for the past year, exclusive of operating costs, to Novak
Drilling Company. (Round answer to 2 decimal places,
e.g. 4.89.)
Total cost per barrel |
$ |
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Novak Drilling Company has leased property on which oil has been discovered. Wells on this property...
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