sesi 2. introduction oil & gas accounting

8/6/2019 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

benefits are received 18


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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

25

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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sesi 2. introduction oil & gas accounting

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