Under full cost accounting, all costs incurred in the acquisition, exploration and development of oil and gas properties are capitalized in cost centers on a country-by-country basis. Because the results of the Cumbria well became known prior to Newfield filing its Form 10-Q, full cost accounting rules require that the costs accrued to drill the well through September 30, 2004 ($7.7 million) be included in the U.K. cost pool, subject to the ceiling or limit on such pool. Because the U.K. cost pool including these accrued costs exceeds the full cost ceiling, Newfield is required to recognize a write down.
Subject to the results of planned drilling during the remainder of 2004, the remaining costs to drill the Cumbria prospect will likely result in a further ceiling test write down in the fourth quarter of 2004. The Cumbria well was drilled under a turnkey contract for approximately $13.2 million.
Most Popular Articles