Problem 7 Stockholm Drilling has leased property on which oil has been discovered. Wells on this property produced 18,000 barrels of oil during the past year that sold at an average sales price of P65 per barrel. Total oil resources of this property are estimated to be 250,000 barrels. The lease provided for an outright payment of P600,000 to the lessor (owner) before drilling could be commenced and an annual rental of P31,500. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Stockholm (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 P30,000. Required From the provisions of the lease agreement, compute the cost per barrel for the past year, exclusive of operating costs, to Stockholm Drilling.
Problem 7
Stockholm Drilling has leased property on which oil has been discovered. Wells on this property produced 18,000 barrels
of oil during the past year that sold at an average sales price of P65 per barrel. Total oil resources of this property are
estimated to be 250,000 barrels.
The lease provided for an outright payment of P600,000 to the lessor (owner) before drilling could be commenced and an
annual rental of P31,500. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the
lessor. In addition, Stockholm (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 P30,000.
Required
From the provisions of the lease agreement, compute the cost per barrel for the past year, exclusive of operating costs, to
Stockholm Drilling.
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