Development Cost associated with Oil & Gas Upstream could be related to Proved or Unproved properties i.e. developing a property i.e. Oil and/Gas
Well or Platform etc.
These costs as well be categorized as:
Now the question pops up what is Developed Leasehold
Many a times it is a common scenario that certain property acquisitions may cover a very large area, particularly international properties. In such cases, the property
cost may be allocated to a portion of the concession area and these are considered as productive and termed as Developed Leasehold.
What about Undeveloped Leasehold ?
The other cost applicable to the Unproved area is termed as Undeveloped Leasehold. Unproved properties are those which has no associated Proved
reserves and are classified as Undeveloped Leasehold.
How the allocations are made between these two ?
In these cases generally the allocations are made on the basis of ratio of Proved and risked probable reserves or on the basis of acquisition case factors.
Let's see which kind of Development Costs are incurred:
Development costs can be of various types.
costs like casing, tubing, pumping equipment etc.
ground, draining, road building, and relocating public roads, gas lines, and power lines, to the extent necessary in developing the proved reserves are
as well considered as development cost.
as development cost.
Treatment of Development Costs in Accounting:
We would be able to appreciate when we know how to treat development cost related expenses that are incurred during the course of developing a property.
How to decide which Costs to be Capitalized:
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