Posted in Finance, Accounting and Economics Terms, Total Reads: 299
Definition: Development Well
It is a well drilled in a producing area which is surely going to have reserves for the production of oil or gas. The well is drilled till the depth which is likely to be productive, such that the chances of success are maximised. A development well is different from an exploratory well, which is drilled to find oil or gas in an unproved area. Thus, dry development wells (unsuccessful development wells) are rarer than the dry exploratory wells.
Before starting drilling, the energy companies spend a lot of time and resources to pinpoint the best locations for carrying out drilling activities, as a dry development well (unsuccessful development well) can be a substantial cost to the company.
The accounting treatment for development wells is different from that of exploratory wells. The costs associated with dry exploratory wells are treated as expenses and the costs of dry development wells are usually capitalized.