Question

Using the successful efforts O&G accounting method. Dry Hole costs are capitalized. Is this statement:

a) True
b) False

Answer 1

Using the successful efforts accounting method in the O&G industry, Dry Hole costs are not capitalized but are instead expensed in the period the well is deemed nonproductive.

Step-by-step explanation:

In the context of the successful efforts accounting method used by oil and gas (O&G) companies, the statement that Dry Hole costs are capitalized is false. Under the successful efforts accounting approach, costs are capitalized only if the drilling results in the discovery of commercially productive reserves. If a well is drilled and it turns out to be a dry hole, which means it is not commercially viable, the related costs are not capitalized. Instead, they are charged to expense in the period in which the determination is made that the well is not commercially productive.