International Petroleum Accounting

602 Pages·2005·11.68 MB·English

by  Gallun

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I
NTERNATIONAL
P
ETROLEUM
A
CCOUNTING
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I
NTERNATIONAL
P
ETROLEUM
A
CCOUNTING
Charlotte J.Wright, Ph.D., CPA
and
Rebecca A. Gallun, Ph.D.
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Copyright ©2005 by
PennWell Corporation
1421 S. Sheridan Road/P.O. Box 1260
Tulsa, Oklahoma 74101
800.752.9764
+1.918.831.9421
[email protected]
www.pennwellbooks.com
www.pennwell.com
Managing Editor: Marla Patterson
Production Editor: Sue Rhodes Dodd
Cover Designer: Sean McGee
Book Designer: Brigitte Coffman
Library of Congress Cataloging-in-Publication Data
Wright, Charlotte J.
International petroleum accounting / Charlotte J. Wright and Rebecca A. Gallun.
p. cm.
ISBN 1-59370-016-4
1. Petroleum industry and trade--Accounting. 2. International business enterprises--
Accounting. I. Gallun, Rebecca A. II. Title.
HF5686.P3W75 2004
657'.862--dc22
2004010611
All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or
transcribed in any form or by any means, electronic or mechanical including photocopying or
recording, without the prior permission of the publisher.
Portions of FASB Statement No. 69, Disclosures about Oil and Gas Producing Activities,
copyright by Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116,
Norwalk, Connecticut 06856-5116, U.S.A., are reprinted with permission. Complete
copies of this document are available from the FASB.
Printed in the United States of America
1 2 3 4 5 09 08 07 06 05
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To Joe Wright
whose understanding, support and patience
was instrumental in making this book come together.
And to Horace R. Brock,
mentor, scholar, and friend,
whose influence on international petroleum accounting practices
is truly remarkable.
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Contents
Preface ......................................................................................................ix
Chapter 1 Upstream Petroleum Operations..............................................................1
Chapter 2 Industry Accounting Practices...............................................................21
Chapter 3 Contracts That Influence Accounting Decisions...................................35
Chapter 4 Accounting for Pre-license Prospecting, Nondrilling Exploration,
& License Acquisition Costs—Successful Efforts ...............................73
Chapter 5 Accounting for Exploratory Drilling & Appraisal Costs—
Successful Efforts................................................................................109
Chapter 6 Accounting for the Costs of Development—Successful Efforts.........129
Chapter 7 Depreciation, Depletion, & Amortization—Successful Efforts..........157
Chapter 8 Full Cost Accounting in International Operations...............................191
Chapter 9 Accounting for Production Costs & Company Evaluation.................227
Chapter 10 Recognition of Revenue.......................................................................263
Chapter 11 Impairment of Proved Property, Wells, Equipment, & Facilities........307
Chapter 12 Accounting for Future Decommissioning & Environmental Costs.......327
Chapter 13 Accounting for International Joint Operations....................................361
Chapter 14 Disclosure of Cost & Reserve Information.........................................395
Appendix A AIPN 2002 Model Form International Operating Agreement............423
Appendix B AIPN Model Form International Accounting Procedure....................515
Appendix C SEC Reg. S-X, Rule 4-10.....................................................................545
Appendix D Acronyms Commonly Used in the International Petroleum Industry...559
Index .............................................................................................................561
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Preface
Changes are constantly occurring in the international oil and gas industry. Currently,
accounting practices in the industry are undergoing some of the most significant
developments since the 1970s. It is our hope that this book will provide a resource, not
only to those who are converting to International Accounting Standards, but also to those
who must cope with the maze of financial, tax, and contract accounting issues faced on a
daily basis. International Petroleum Accountingwas written to serve as a reference source
for accountants, auditors, analysts, and others seeking to understand and apply accounting
principles and practices in the international petroleum industry. We believe that the book
will also be useful as a college textbook.
Chapter 1 provides a brief introduction to oil and gas accounting standards including
the phases of operations encountered in upstream operations that are essential to
understanding the discussions throughout this book. The remaining chapters discuss
various topics related to accounting for international oil- and gas-upstream operations.
These include the international operating environment (including contracts and policies
encountered in international operations), accounting for the various phases of operations
encountered in international upstream operations, joint interest accounting, and required
disclosures for oil and gas producing companies.
The Securities and Exchange Commission has indicated that it intends to pursue a
dual objective of upholding high quality financial reporting domestically, while
encouraging convergence toward a high quality global financial reporting framework.
Toward this end, at the present time there is an effort underway to harmonize Financial
Accounting Standards Board and International Accounting Standards Board (IASB)
standards. In addition, there is a significant global movement toward acceptance of
International Accounting Standards (IAS). This is evidenced by the European Union’s
decision that member countries should convert to IASB standards by 2005.
Currently, oil and gas producers operating internationally must follow the various
international accounting standards that apply to their business activities as well as
complying with any industry-specific accounting standards. At the present time, there is
no oil and gas industry-specific IASB standard. The IASB Extractive Industries Steering
Committee released an Issues Paper in 2000, but given the many pressing matters faced
by the IASB, that project is no longer a high priority. The IASB has indicated that in the
absence of a specific IAS, companies may look to the pronouncements of other
internationally recognized standard-setting bodies and to accepted industry practices,
provided that the accounting policies are consistent with the IASB Framework.
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