Question:

What is the proper accounting for recognizing currently nonproductive gas well drilling costs for companies regularly involved in drilling operations?

Answer:

As actual drilling costs are incurred on wells classified as gas wells, they shall be recorded through work orders as charges to Account 107, Construction Work in Progress--Gas, in sufficient detail to comply with General Instruction 12, Note B and to permit classification of such costs in Accounts 330, Producing Gas Wells--Well Construction, and 331, Producing Gas Wells--Well Equipment, as appropriate.

Based on studies and prior experience, to provide currently for nonproductive well drilling expenses which reasonably may be expected, the Company, at its option, may record monthly charges to operating expenses by crediting an appropriate subdivision of Account 107 and charging a subdivision of Account 796, Nonproductive Well Drilling. Appropriate adjustment of these accounts shall be made annually (at year-end) for actual cost of wells determined nonproductive during the period and for the estimated cost of wells being drilled that are expected to be nonproductive.