sesi 2. introduction oil & gas accounting
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SESI 2
INTRODUCTION OIL & GAS
ACCOUNTING
Akuntansi Perminyakan
Fakultas Ekonomi UniversitasRiau
Pengasuh
Dr. H. Kasman Arifin SE.,Ak.,MM
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TUJUAN PEMBELAJARAN
1. Untuk mengetahui alat ukur dalam industri
perminyakan2. Mengetahui dilema dalam akuntansi
perminyakan
3. Memahami implementasi dari historical cost
accounting methods di industri perminyakan
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BAGIAN 1. RENCANAPEMBELAJARAN
Chemistry & Measurement
Reserve Value
Accounting Dilemmas Historical Cost Accounting Methods
Historical Development of Accounting
Methods and Current Status
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BAGIAN 2. CHEMISTRY& MEASUREMENT
AND RESERVE VALUE
Chemistry & Measurement
Different mixtures of hydrocarbons have varying
uses and economic values
Crud oil refers to unrefined hydrocarbon mixtures
produced from underground reservoirs that are
liquid at normal atmospheric pressure and
temperature.
Density is measured in API gravity (standardindustry American Petroleum Institute).
Natural gas refers to hydrocarbon mixtures that are
not liquid, but gaseous at normal atmospheric
pressure and temperature
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CHEMISTRY& MEASUREMENT
Natural gas may also contain some of the larger
hydrocarbon molecules commonly found in nature :
y Ethane (C2H6)
y Butane (C4H10)y Propane (C3H8)
y Natural gasoline (C5H12 to C10H22)
Ehane, propane, butane and natural gasolines are
collectively called natural gas liquids (NGL) Both natural gas and cruid oil can contain
contaminations, such as sulfur compounds and
carbon dioxide (CO2) 5
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CHEMISTRY& MEASUREMENT
In the US. Natural gas is measured in two ways,and both are important in petroleum accounting By the amount of energy or heating value when
burned; this quantity is expressed in million Britishthermal units (MMBtu).
By volume, which is expressed ini :
y Mcf(thousand cubic feet)
y MMcf(million cubic feet)
y Bcf(billion cubic feet)
y
Tcf(trillion cubic feet) Crued Oil is measured in the U.S by volume
expressed as barrels (bbl). A barrel equates to 42U.S gallons
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OOIP 40 BBO artinya minyak yang terkandung terdiri atas :
Proved Reserve : Reasonable certainty (90% ) to be recoverable from known
reservoir under existing economic and operating condition
Proved Develop : existing well, equipment & operating method.Proved Undevelop: new well from undrilled area or from existing well with
additional expenditure for recompletion.
Probable Reserve : More likely (50%) to be recoverable with a new enhanced
recovery project and economic condition.
Possible Reserve : Less likely (10%) to be recoverable.
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RESERVE VALUE
Petroleum Exploration and production economics isbased on the size and nature of oil & gas reserves in
relation to oil and gas price, ie., reserve value. An E&P
company is said two key assets
Human capital with the ability to find (or acquire),develop, and produce oil and gas reserves
profitability.
Existing reserves and their capabilities, when
produced to generate positive cash flow
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RESERVE VALUE
E&P financial statement accounting recognizes theeconomic importance of reserves in three ways :
Capitalized cost of properties with proved reserved(proved properties) are amortized on a unit-of-production method based the ratio of volumes
produced during the period to the sum of volumesand remaining proved reserves at the end of theperiod.
Proved properties, net capitalized costs arelimited to certain computations of value of the
underlying proved reserves. Public companies must disclosure, with audited
financial statements, certain supplementalunaudited information on the proved reservevolumes and certain related values
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BAGIAN 3. ACCOUNTING DILEMMAS
The nature of petroleum exploration and production risesnumerous financial reporting issues. Some of these challengesinclude, but are not limited to
Given the modest success rates for exploratory wells, should wellcosts be treated as assets or expenses ? Should the cost ofdry holebe capitalized as a cost of finding oil and gas reserves ? Suppose a
company drills five exploratory wells costing $ 1 million each, butonly one well finds a reservoir worth $ 20 million to company.Should the company recoqnize an asset for the total $ 5 million ofcost, the $1 million cost of the successful well, the $20 millionvalue of the productive property or some other amount
The sales prices of oil and gas can fluctuate widely over overtime.Hence, the value of rights to produce oil and gas may fluctuatewidely. Should such value fluctuation affect the amounts of therelated assets presented in financial statements ?
If production declines over time and productive life varies byproperty, how should capitalized and depreciated ?
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BAGIAN 4. HISTORICAL COST ACCOUNTING
METHODS
The four basic types of costs incurred by oil &
gas company.
Acquisition Cost
Exploration Cost
Development Cost
Production Cost
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HISTORICAL COST ACCOUNTING METHODS
The four basic types of costs incurred by oil and gas
companies in exploration and production activities must
be accounted for using one of two generally accepted
historical cost methods ; the successful efforts method
or the full cost method.
1) Successful Efforts Method (SE) ASR 257
Cost of successful efforts are capitalized as oil and gasproperties.
Cost of Exploratory dry holes, G&G Cost in General and otherproperty carrying Cost are expensed.
Amortization is calculated using Unit Of Production (UOP)method on lease orfield basis
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HISTORICAL COST ACCOUNTING METHODS
2. Full Cost Method (FC) ASR 258
All costs of Acquisition, Exploration and Developmentactivities, even dry hole costs are capitalized.
Amortization is calculated using Unit Of Production
(UOP) method on country basis
Sample :o A company drills 5 ( five ) Exploratory Wells @ $ 1 MM and only one
finds Proved Reserves.
Successful Effort => Asset = $ 1 MM, Expense = $ 4 MM
Full Cost => Asset = $ 5 MM, Expense = $ 0
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NO STAGE DESCRIPTIONSUCCESSFUL
EFFORTFULL COST PSC
1ACQUISIT
IONACQUISITION COST CAPITAL CAPITAL
NON COST
RECOVERY (
TAXABLE
2 GEOLOGICAL &GEOPHYSICAL EXPENSE CAPITAL EXPENSE
3 EXPLORATORY WELL - DRY HOLE EXPENSE CAPITAL EXPENSE
4 EXP. WELL - SUCCESS - INTANGIBLE CAPITAL CAPITAL EXPENSE
5 EXP. WELL - SUCCESS - TANGIBLE CAPITAL CAPITAL CAPITAL
6 DEVELOPMENT WELL - INTANGIBLE CAPITAL CAPITAL EXPENSE
7 DEVELOPMENT WELL - TANGIBLE CAPITAL CAPITAL CAPITAL
8 PRODUCTION & SUPPORTING FACILITIES CAPITAL CAPITAL CAPITAL
9PRODUCT
IONPRODUCTION COST EXPENSE EXPENSE EXPENSE
10 COST CENTREFIELD,
RESERVOIRCOUNTRY AREA
11 DEPRECIATION METHOD UOP & SL UOP & SL DB, DDB, SL
12 MRO
BASED ON
ACTUAL
USAGE
BASED ON
ACTUAL
USAGE
FULL LANDED
COST
E
X
P
L
O
R
AT
I
O
N
D
E
V
E
L
O
P
M
E
N
T
OTHER
COMPARISON AMONG SE, FC AND PSCCOMPARISON AMONG SE, FC AND PSC
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FINANCIAL STATEMENT
Tyler Oil Company began operations on March 3, 2010,with the acquisition of a lease in Texas. During the firstyear, the following cost were incurred, DD&A recognized,and the following revenue was earned :
G & G Costs .... 60,000 Acquisition cost s. 100,000
Exploratory dry holes . 1,400,000
Exploratory wells, successful 800,000
Development cost s 500,000
Production costs 50,000DD&Aexpense .. 40,000 (SE) 90,000 (FC)
Revenue . 250,000
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FINANCIAL STATEMENT
Income StatementSuccessful Efforts Full Cost
Revenue $ 250,000 $ 250,000
Expenses :G & G $ 60,000 $ 0
Exploratory dry holes 1,400,000 0
Production costs 50,000 50,000
DD&A 40,000 90,000
Total expense 1,550,000 140,000
Net Income $ 1,300,000) $ 110,000
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FINANCIAL STATEMENT
Partial Balance SheetSuccessful Efforts Full Cost
G & G Cost $ 150,000 $ 60,000
Acquisition Cost 100,000Exploratory dry holes 1,400,000
Exploratory wells, successful 800,000 800,000
Development costs 500,000 500,000
Total Asset 1,400,000 2,860,000
Less : Accumulated DD & A ( 40,000) (90,000)Net Income $ 1,360,000) $ 2,770,000
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ACCOUNTING METHODS AND
CURRENT STATUS
Accounting for oil and gas producing activities poses
many technical ant theoretical problems and has been
subject to much controversy. Reasons for the controversy
surrounding the accounting procedures used by oil and
gas exploration and producing companies ralated to thecharacteristics of the oil and gas industry.
The characteristic include the following :
High risk
High cost of investment
Lack of correlation between size of expenditures and the value
of any resulting reserves
Long time span from when costs are first incurred until
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BAGIAN 5. ISSUE MANAJERIAL
SFAS No 69 requires publicly traded companies with
significant oil & gas producing activities to disclosure
supplementary information in their annual financial
statements related to the following items :
Historical Based :
Proved reserve quantity information
Capitalized costs relating to oil and gas producing activities
Costs incurred for property acquisition, exploration, anddevelopment activities
Result s of operations for oil & gas producing activities
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BAGIAN 5. ISSUE MANAJERIAL
Value Based :
A standardized measure of discounted future net cash flows
relating to proved oil and gas reserves quantities.
Change in the standardized measure of discounted cash flows
relating to proved oil and gas reserve quantities.
Public and non public companies are required to disclosure two
informational items :
Accounting method used in accounting for oil and gas producing
activities
Manner of disposing of capitalized costs
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INTRODUCTION TO SUCCESSFUL EFFORTS
ACCOUNTING
Incured
acquisition
costs
Incured exploration costs
(drilling & nondrilling
Incured
development
costs
Incured
production
costs
Capaitalized
as unproved
property
Are
reserve
s found
Add cost to
amortizationbased
Amortized on
the basis of
production
(PR)
Change to the Income Statement
Yes,Provedreserves
No,Impairedabandoned
Nondrilling
costs
Drilling
costs
Are
reserve
s foundNo,dry Yes,
Provedreserves
Add cost to amortization
based(wells and equipment)
Amortized on the
basis of
production (PDR) 21
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OVERVIEW OF ENTRIES SUCCESSFUL EFFORTS
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a. On January 1, Tyler Company spends $ 900,000 on G&G activities to locate and
explore an oil prospect. (This is an exploration activity that cannot directly findoil or gas and so cannot be termed successful. Only by drilling a well can oil or
gas normally be found).
Entry
G&G expense 900,000
Cash .. 900,000
b. On January 15, Tyler Company acquires a 100-acre lease, paying a $ 500-per-acre bonus (acquisition cost)
Entry
Unproved property (100x$500) 50,000
Cash .. 50,000
c. On February 20, Tyler Company drills a dry exploratory well at a cost of$700,000 (unsuccessful or nonproductive exploration cost).
Entry
Dry hole expense 700,000
Cash .. 700,000
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OVERVIEW OF ENTRIES SUCCESSFUL EFFORTS
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d. On March 29, Tyler Company drills a successful exploratory well at a cost of $
825,000 (successful exploration cost)
Entry
Well and equipment . 825,000
Cash .. 825,000
As a result of successful exploratory well, Tyler must also reclassify the property.
Entry
Proved property . 50,000
Unproved property .. 50,000
e. On April 10, Tyler Company spends $850,000 on production facilities such as flow
lines. (this cost incurred in preparing proved reserves for production and there
fore is a development cost)
Entry
Well & Equipment . 850,000
Cash .. 850,000
f. On June 3, Tyler Company incurs $ 50,000 in production costs (production cost).
Entry
Production expense 50,000
Cash .. 50,000
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INTRODUCTION TO FULL COST ACCOUNTING
Incured
acquisition
costs
Incured exploration costs
(drilling & nondrilling
Incured
development
costs
Incured
production
costs
Capaitalized
as unproved
property
Are
reserve
s found
Capitalize as
impaired orabandoned
costs
Yes, ProvedReserves found
No,Impairedabandoned
Add cost to amortization
based
(wells and equipment)
Amortized on the
basis of
production (PDR) 24
Income
Statement
Or
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OVERVIEW OF ENTRIES FULL COST
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a. On January 1, Tyler Company spends $ 900,000 on G&G activities to locate and
explore an oil prospect. (This is an exploration activity that cannot directly findoil or gas and so cannot be termed successful. Only by drilling a well can oil or
gas normally be found).
Entry
G&G expense 900,000
Cash .. 900,000
b.
On January 15, Tyler Company acquires a 100-acre lease, paying a $ 500-per-acre bonus (acquisition cost)
Entry
Unproved property acquisition 50,000
Cash .. 50,000
c. On February 20, Tyler Company drills a dry exploratory well at a cost of$700,000 (exploration cost).
Entry
Exploratory dry hole . 700,000
Cash .. 700,000
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OVERVIEW OF ENTRIES FULL COST
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d. On March 29, Tyler Company drills a successful exploratory well at a cost of $
825,000 (exploration cost)
Entry
Well and equipment . 825,000
Cash .. 825,000
As a result of successful exploratory well, Tyler must also reclassify the property.
Entry
Proved property-acquisition 50,000
Unproved property .. 50,000
e. On April 10, Tyler Company spends $850,000 on production facilities such as flow
lines. (development cost)
Entry
Well & Equipment . 850,000
Cash .. 850,000f. On June 3, Tyler Company incurs $ 50,000 in production costs (production cost).
Entry
Production expense 50,000
Cash .. 50,000
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