Reference no: EM131794833

Problem

Wildhorse Drilling Company has leased property on which oil has leased property on which oil has been discovered . Wells on this property produced 18,010 barrels of oil during the past year that sold at an average sales price of $56 barrel. Total oil resources of this property are estimated to be 239,100 barrels.

The lease provided for an outright payment of $ 505,000 to the lessor (owner) before drilling could be commenced and annual rental of $31,815. A premium of 5% of the sales price of every barrel oil removed is to be paid annually to the lessor. In addition, Wildhorse (lessee) is to clean up all the waste and debris from drilling and to bear the cost 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 $ 30,300

From the provisions of the lease agreement, compute the cost per barrel for the past year, exclusive of operating costs, to wildhorse drilling company.