How to Capitalize Drilling and Completion Costs for a Development Well in a Proven Field
Capitalizing the full cost of drilling and completing a development well as part of the oil and gas property.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Development Assets — Oil & Gas Properties | Asset (+) | 25,000,000.00 | - |
| Cash / Accounts Payable | Asset/Liability (-) | - | 25,000,000.00 |
💡 Accountant's Note
Development wells are drilled after commercial reserves are confirmed. Their costs are capitalized to the oil and gas property and depleted over the proved developed reserves using the Units of Production (UOP) method.
Practitioner & Systems Framework
💻 ERP Architecture
Development well costs include all drilling, casing, cementing, completion, and wellhead equipment costs. Capitalize all directly attributable costs from spud date through first production. Track against an approved well AFE and record cost overruns separately for management reporting. The capitalized development well cost is added to the field's Development Asset pool and depleted using the UOP method alongside other development costs. Update the UOP depletion rate to reflect the new proved developed reserves added by the well.
⚠️ Audit Flags
Auditors verify that the development well costs are genuinely for a well in a proved field — development wells must be in areas with proved reserves to qualify for capitalization. Costs incurred to drill in unproved areas adjacent to a development are treated as E&E costs, not development costs, until reserves are confirmed. They also check that workover costs (maintenance drilling) are correctly expensed rather than capitalized as new development assets.
📄 Required Documentation
Well AFE approved by management and JV partners, daily drilling report, well completion report, wireline logs confirming production zone, wellhead equipment commissioning record, first production date (depletion start date), updated proved developed reserve estimate, and capitalized cost reconciliation to AFE.
Automate this entry with the JEH Accounting Suite
Stop doing manual entry. Our VBA-powered ERP automatically generates your ledgers, Trial Balance, and Financial Statements.
No Subscriptions. Own your data.
Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
Related Journal Entries
Oil & Gas
How to Capitalize the Cost of a 3D Seismic Survey as an Exploration and Evaluation Asset Under IFRS 6
Oil & Gas
How to Capitalize Exploratory Drilling Costs as an E&E Asset Pending Reserve Determination
Oil & Gas