International petroleum accounting

WG00(i-x).qxd 10/5/04 12:35 PM Page i INTERNATIONAL PETROLEUM ACCOUNTING WG00(i-x).qxd 10/5/04 12:35 PM Page ii WG00(i-x).qxd 10/5/04 12:35 PM Page iii INTERNATIONAL PETROLEUM ACCOUNTING Charlotte J Wright, Ph.D., CPA and Rebecca A Gallun, Ph.D WG00(i-x).qxd 10/5/04 12:35 PM Page iv Copyright ©2005 by PennWell Corporation 1421 S Sheridan Road/P.O Box 1260 Tulsa, Oklahoma 74101 800.752.9764 +1.918.831.9421 sales@pennwell.com 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 Petroleum industry and trade Accounting 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 09 08 07 06 05 WG00(i-x).qxd 10/5/04 12:35 PM Page v 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 WG00(i-x).qxd 10/5/04 12:35 PM Page vi WG00(i-x).qxd 10/5/04 12:35 PM Page vii Contents Preface ix Chapter Upstream Petroleum Operations Chapter Industry Accounting Practices .21 Chapter Contracts That Influence Accounting Decisions 35 Chapter Accounting for Pre-license Prospecting, Nondrilling Exploration, & License Acquisition Costs—Successful Efforts .73 Chapter Accounting for Exploratory Drilling & Appraisal Costs— Successful Efforts 109 Chapter Accounting for the Costs of Development—Successful Efforts .129 Chapter Depreciation, Depletion, & Amortization—Successful Efforts 157 Chapter Full Cost Accounting in International Operations .191 Chapter 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 vii WG00(i-x).qxd 10/5/04 12:35 PM Page viii WG00(i-x).qxd 10/5/04 12:35 PM Page ix 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 Accounting was 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 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 ix WGIndex(561-590).qxd 10/5/04 1:30 PM Page 577 Index Materials and supplies, 384, 389–390, 538–541: direct charges, 384; joint operations accounting, 389–390; disposal, 390, 538–541; acquisition, 538–541 Mcf volume-based measurement (gas), 245–246: conversion, 246 Minimum work commitment (RSA), 65: example, 65 Money royalty, 43, 264–265: example, 264–265 Monitoring (exploratory cost accounting), 125–126 Measurement of decommissioning and environmental costs (UK), 355 Measurement unit conversion, 172–173 Measuring gas (production operations), 245–246: example, 246 Measuring oil (production operations), 235 Metered gas allocations, 249–250: example, 250 Midstream oil and gas operations (drilling and development cost accounting), 155 Mineral ownership, 41, 82: mineral rights, 82 Mineral property acquisition costs, 157 Mineral right/interest acquisition/contracting phase, 8, 10–14: concessions/concession agreements, 10, 12; production sharing contracts, 10–13; risk service agreements, 10–11, 13–14; leases, 11; accounting, 14; signature bonus, 14 Mineral rights, 8, 10–14, 41, 82, 157: acquisition/contracting phase, 8, 10–14; ownership, 41, 82; acquisition costs, 157 Minimum work commitment (PSC), 46–47: example, 47 N Net cash flows (future), 213–214: example, 213–214 Net cash flows (proved reserves), 413–419: changes, 417–419 Net profit interest, 37–38, 149 Net revenues (future), 213–214: example, 213–214 Nigeria, 33 Nigerian Accounting Standards Board, 33 Non-operating interest, 36, 149: drilling and development cost accounting, 149 Nonworking interest amortization (DD&A cost accounting), 181–182 Nonworking interest, 36, 181–182: cost amortization, 181–182 Norway, 2, 24 O Obligating event identification (U.S GAAP), 331 Obligating events (IAS 37), 351 577 WGIndex(561-590).qxd 10/5/04 1:30 PM Page 578 International Petroleum Accounting Obligations recognition/measurement (U.S GAAP), 332–333, 337–339: initial, 323–333; subsequent, 337–339; changes due to passage of time, 338–339; example, 338–339 Offices, camps, and miscellaneous facilities (direct charges), 383 Oil allocation (production operations), 236–244: back to well/facility, 237–238; examples, 237–244; first in first out method, 238–240; available for sale method, 241–242; gravity barrel method, 242–243; value-on-value method, 242–244 Oil Industry Accounting Committee (OIAC), 2, 32, 264 Oil used in operations, 235 Operating committees, 44, 364: PSC, 44; JOA, 364 Operating costs, 66, 228: vs capital costs, 66 Operating vs capital costs (RSA), 66: example, 66 Operations overlap, 18–19: pre-license vs post-license exploration, 19; exploration and appraisal during development and production, 19 Overlift and underlift (recognition of revenue), 288–295: sales method, 290–293; examples, 291–295; entitlements method, 293–295 Overriding royalty interest (ORI), 37–38, 149–151, 181 Owned or entitled reserves, 162–167 Ownership of assets (RSA), 67–68: example, 68 Ownership of equipment and materials (PSC), 55–56: example, 56 Ownership of minerals and production (RSA), 64–65: example, 65 Ownership of reserves, 70–71, 162–167: U.S GAAP, 71; SEC, 71; SFAS No 69, 71 Ownership, 9–10, 55–56, 64–65, 67–68, 70–71, 162–167: prospect access, 9–10; equipment and materials, 55–56; examples, 56, 65, 68; minerals and production, 64–65; assets, 67–68; reserves, 70–71, 162–167 Ownership/access (prospect), 9–10 Operator/non-operator (lease), 37 Operatorship (JOA), 365 Orifice meters, 248 Outright sales (oil), 235 Overhead costs, 136, 230–231: drilling and development activities, 136 Overhead rates (PSC), 55 578 P–Q Partial abandonment (proved properties), 182–183: example, 183 WGIndex(561-590).qxd 10/5/04 1:30 PM Page 579 Index Partial abandonment/relinquishment (pre-license cost accounting), 97 Payments and advances (international joint operations), 368–376: examples, 369–376; cash call, 369–370; settlement and cutback, 371–373; joint interest billing and cutback, 374–376 Performance measurement and evaluation (company production costs accounting), 256–261: lifting costs per BOE, 256–257; examples, 257–261; DD&A per BOE, 257–258; average daily production, 259; average daily production per well, 259–260; average production per employee, 261 Permits (direct charges), 379 Petroleum tax, 25, 39, 41 Phases of operations (PSC), 45–46: example, 46 Point of production (inventory), 286–287 Possible reserves (probabilistic method), Post-balance sheet events (ceiling test), 220 Post-balance sheet period (exploratory cost accounting), 123–124: example, 124 Post-balance sheet period (pre-license cost accounting), 97–98 Pre-license exploration (prospecting/nondrilling), 19, 73–78: accounting, 75–78; U.S successful efforts, 75–76; UK successful efforts, 76–77 Pre-license prospecting phase, 8–10: ownership/access, 9–10 Pre-license prospecting, nondrilling exploration, and license acquisition costs (successful efforts), 73–108: pre-license prospecting and nondrilling exploration, 73–78; G&G activities, 75–79; G&G overhead, 78–79; G&G costs and contract accounting, 79; support equipment and facilities, 79–81; reprocessing seismic, 82; license acquisition costs, 82–89; impairment of unproved property, 89–94; abandonment of unproved property, 95–96; partial abandonments or relinquishments, 97; post-balance sheet period, 97–98; unproved property reclassification, 98–99; cost centers, 99–100; reclassification with field as cost center, 101–103; sales of unproved property, 103–107; references, 108 Pre-license vs post-license exploration, 19 Primary term (lease), 38–39 Probable reserves (probabilistic method), 3, 5–6 Producing activities (definition), 544–545 Producing activities results (disclosure), 402–406 Producing assets, 323 Production balancing, 290–293: example, 291–293 Production bonus, 42–43, 84–86: examples, 43, 85–86; license acquisition, 84–86 Production costs (definition), 227, 548–549 Production costs allocation, 231–233: example, 232–233 579 WGIndex(561-590).qxd 10/5/04 1:30 PM Page 580 International Petroleum Accounting Production costs and company evaluation accounting, 227–261: production /operating/lifting costs, 228; typical production operations costs, 228–231; allocation of costs, 231–233; examples, 232–233, 237–244, 246, 250–255; crude oil production, 234–244; gas production, 244–255; performance measurement and evaluation, 256–261 Production equipment and facility costs, 158 Production for period, 167–168 Production offsetting, 290 Production operations costs, 228–231 Production payment interest, 38 Production phase, 9, 17, 19, 141, 227–261: operations overlap, 19 Production sharing agreement (PSA), 11–12 Production sharing contracts (joint operations), 270–275: cost recovery, 272–275; example, 272–275 Production sharing contracts (PSC), 10–13, 27, 41–62, 112, 117, 125, 136, 160, 162, 165–167, 270–275, 361–362: signature and production bonuses, 42–43; royalties, 43–44; operating committees, 44; government participation in operations, 45; training and technology transfer, 45; phases of operations, 45–46; minimum work commitment, 46–47; relinquishment, 48; cost recovery, 49–51, 58–59; profit oil, 51–53; recoverable costs, 53–55; overhead rates, 55; 580 ownership of equipment and materials, 55–56; tax barrels, 56–57; cost recovery illustration, 58–59; decommissioning and abandonment costs, 60–61; other terms and fiscal incentives, 61–62; joint operations, 270–275; example, 272–275 Production tax, 25 Production/operating/lifting costs, 228 Profit oil (PSC), 51–53: example, 51–52 Property acquisition, exploration, and development costs (disclosure), 400–401 Property damages/losses (direct charges), 386 Property groupings, 91–92 Property reclassification, 98–99 Prospecting costs, 157 Proved area (definition), 546 Proved developed reserves, 3–7, 546: definition, 546 Proved properties (definition), 546 Proved properties abandonment (DD&A cost accounting), 182–185: partial abandonment, 182–183; examples, 183–184; entire field abandonment, 184–185 Proved properties purchases (ceiling test), 219 Proved property sales, 185–188: examples, 186–188 Proved property working interest (acquisition), 152–153: example, 153 Proved reserves (deterministic method), 3–7: developed, 3–7; undeveloped, 3–7 WGIndex(561-590).qxd 10/5/04 1:30 PM Page 581 Index Proved reserves estimates (disclosure), 406–412 Proved reserves, 3–7, 159–160, 406–412, 545–546: estimates, 3–7, 406–412; definition, 545–546 Proved undeveloped reserves, 3–7, 546: definition, 546 Proven reserves (probabilistic method), 3, 5–6 take-or-pay contracts, 299–302; recognition of test production, 302–304; accounting for injected gas, 304–305; references, 306 Reconnaissance survey, 74 Recording revenue gross, 264 Recording revenue net of royalty, 264 Recoverability testing (U.S GAAP), 310 Recoverable amount (IAS 36), 318–319 Recoverable costs (PSC), 53–55 R Realized/realizable revenue, 263 Reassessment (U.S GAAP), 344–345 Reclassification (field as cost center), 101–103: examples, 101–103 Reclassification (unproved property), 98–99 Recognition and valuation of inventories, 285–288: point of production, 286–287; lower-of-cost-or-market valuation, 287–288 Recognition of related asset (U.S GAAP), 332 Recognition of revenue, 263–306: accounting for royalties, 263–265; examples, 264–270, 272–277, 279–285, 291–295, 298–302; revenue determination in joint operations, 265–278; unitizations, 278–285; recognition and valuation of inventories, 285–288; overlift and underlift, 288–295; U.S GAAP, 295–296; UK GAAP, 296–297; facility imbalances, 297–299; Rehabilitation (RSA), 64: example, 64 Relinquishment (PSC), 48: example, 48 Relinquishment/abandonment (unproved property), 97 Relocation costs (employee), 381–383 Repair and maintenance costs, 229–230 Reporting Interests in Joint Ventures and Similar Arrangements (G4+1 group), 393 Reporting/disclosures (U.S GAAP), 350 Reprocessing seismic (pre-license cost accounting), 82 Reserve estimates revision (DD&A cost accounting), 181 Reserve estimation methods/methodology, 3–7: deterministic, 3; probabilistic, Reserve value disclosures, 419 Reserve/cost information disclosure, 395–422: overview, 396–397; required disclosures, 397–398, 421–422; capitalized costs relating to producing activities, 398–399; 581 WGIndex(561-590).qxd 10/5/04 1:30 PM Page 582 International Petroleum Accounting costs incurred for property acquisition, exploration, and development activities, 400–401; results of operations for producing activities, 402–406; estimated quantities of proved reserves, 406–412; standardized measure of discounted future net cash flows (proved reserves), 413–417; changes in standardized measure, 417–419; relevance/reliability of reserve value disclosures, 419; reserves disclosure in international operations, 420; other means of disclosure, 420–421; disclosures required by UK GAAP, 421–422 Reserves (definition), 3–8: U.S GAAP, 4–5, 8; UK GAAP, 4–8 Reserves categories used (computing DD&A), 158 Reservoir (definition), 547 Retained/carved out interest, 37 Revenue gross, 264 Revenue net of royalty, 264 Revenue recognition, 263–306: accounting for royalties, 263–265; examples, 264–270, 272–277, 279–285, 291–295, 298–302; revenue determination in joint operations, 265–278; unitizations, 278–285; recognition and valuation of inventories, 285–288; overlift and underlift, 288–295; U.S GAAP, 295–296; UK GAAP, 296–297; facility imbalances, 297–299; take-or-pay contracts, 299–302; recognition of test production, 302–304; accounting for injected gas, 304–305; references, 306 Reserves disclosure (international operations), 406–412, 420 Right to assign interest, 39 Reserves exclusion, 175–177: examples, 176–177; U.S., 176–177; UK, 177 Ringfencing, 61–62 Reserves owned or entitled to (DD&A cost accounting), 162 Reserves related to royalties (DD&A cost accounting), 161–162 Reserves use in financial accounting, Reserves used (computing DD&A), 161–167: determining share of reserves, 161–167; reserves related to royalties, 161–162; reserves owned or entitled to, 162; examples, 163–166; working interest method, 163–165; economic interest method, 165–167 582 Rights to free use of resources, 39 Risk service agreements (joint operations), 275–277: example, 275–277 Risk service agreements (RSA), 10–11, 13–14, 27, 62–70, 125, 162, 275–277: length of contractor participation limitations, 63; rehabilitation, 64; ownership of minerals and production, 64–65; minimum work commitment, 65; operating versus capital costs, 66; compensation/fee, 67; ownership of assets, 67–68; WGIndex(561-590).qxd 10/5/04 1:30 PM Page 583 Index examples, 68–70, 275–277; joint operations, 275–277 Royalties (PSC), 43–44: in-kind, 43; money, 43; sliding scale, 44; example, 44 Royalties, 36–38, 41, 43–44, 62, 161–162, 263–265, 422: interest, 36–38, 41; provision, 38; PSC, 43–44; in-kind, 43, 263–265; examples, 43–44, 264–265; money, 43; sliding scale, 44; holidays, 62; reserves, 161–162, 422 Royalty holidays, 62 Royalty in-kind, 43–44, 263–265: PSC, 43; examples, 43, 264–265 Royalty interest, 36–38, 41: overriding royalty interest, 37–38 Royalty provision, 38 Royalty reserves, 161–162, 422 S Salaries, wages, and related costs (direct charges), 379–381 Sales method (overlift/underlift), 290–293: example, 291–293 Sales of proved property, 185–188: examples, 186–188 Sales of unproved property (pre-license cost accounting), 103–107: examples, 104–106 Salvage values (U.S GAAP), 337 Salvage values (UK decommissioning and environmental costs), 356 SEC Regulation S-X, Part 210, Rule 4-10, 23, 32, 110, 192–196, 204, 206–207, 210, 215, 308, 543–555 Seismic data processing, 82 Seismic exploration, 135 Service well (definition), 131, 547 Settlement and cutback (payments and advances), 371–373: example, 371–373 Severance tax, 25 SFAC No (Objectives of Financial Reporting by Business Enterprises), 22 SFAC No (Using Cash Flow and Present Value in Accounting Measurements), 332–333 SFAS No 121 (Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of), 307–308 SFAS No 131 (Disclosures about Segments of an Enterprise and Related Information), 396–397 SFAS No 141 (Business Combinations), 153 SFAS No 143 (Accounting for Asset Retirement Obligations), 180, 185, 311, 327–335, 340, 344–345, 347–350, 356, 358–359 SFAS No 144 (Accounting for the Impairment or Disposal of Long-Lived Assets), 219–220, 307, 323, 325–326, 345–347, 350 583 WGIndex(561-590).qxd 10/5/04 1:30 PM Page 584 International Petroleum Accounting SFAS No 19 (Financial Accounting and Reporting by Oil and Gas Producing Companies), 2, 4, 30–32, 75–76, 79, 86, 89–90, 97, 100, 110–111, 120–122, 130–132, 135, 142, 148, 150, 155, 160, 168, 171, 181, 183, 185–186, 328, 339, 350 SFAS No 29 (Indonesia), 33 SFAS No 34 (Capitalization of Interest), 138–140, 208, 311, 338 SFAS No 69 (Disclosures about Oil and Gas Producing Activities), 2, 4, 30, 32, 34, 71, 155, 350, 395–398, 416–417, 420–421 Share of reserves (DD&A cost accounting), 161–167: reserves related to royalties, 161–162; reserves owned or entitled to, 162; examples, 163–166; working interest method, 163–165; economic interest method, 165–167 Shrinkage factor, 252 Signature/lease bonus, 14, 38, 42–43: example, 43 Sliding scale royalties, 44: example, 44 Society of Petroleum Engineers (SPE), Sole risk/carried interests (drilling and development cost accounting), 141–148: example, 143–147; development carried interests, 147–148 South Africa, 2, 24 Staff Accounting Bulletin No 12—SEC (SAB No 12), 192, 196, 215, 220 Standardized measure of discounted future net cash flows (SMOG), 413–419: changes, 417–419 Statement of Accounting Standard 14 (Nigeria), 33 584 Statement of Accounting Standard 17 (Nigeria), 33 Statement of Financial Accounting Concepts (SFAC) See Individual SFACs Statement of Financial Accounting Standards (SFAS) See Individual SFASs Stratigraphic test well (definition), 110–111, 131, 547 Successful efforts (DD&A cost accounting), 157–189: reserves categories used in computing DD&A, 158; costs subject to DD&A, 159–160; cost center designation and DD&A, 160–161; reserves used in computing DD&A, 161–167; examples, 163–166, 168–170, 172–177, 179–180, 183–184; unit-of-production DD&A, 167–170; joint production of oil and gas, 171–173; significant development expenditures, 173–177; depreciation of support equipment and facilities, 178–180; future dismantlement and environmental restoration costs, 180; revision of reserve estimates, 181; amortization of nonworking interest, 181–182; abandonment of proved properties, 182–185; sales of proved property, 185–188; references, 189 Successful efforts (development cost accounting), 129–156: drilling and development costs— U.S., 130–131; drilling and development costs— UK, 132–134; examples, 133–134, 137–138, 143–147, 150–151, 153; WGIndex(561-590).qxd 10/5/04 1:30 PM Page 585 Index capitalization of development-related G&G exploration costs, 135; overhead associated with drilling and development activities, 136; capitalization of depreciation of support equipment and facilities, 137–138; capitalization of financing costs, 138–141; moving into production phase, 141; sole risk or carried interests, 141–148; development carried interests, 147–148; non-operating interests, 149; farm-ins and farm-outs, 150–151; acquisition of working interest in proved property, 152–153; acquisition resulting from business combinations, 153–154; midstream oil and gas operations, 155; references, 156 Successful efforts (exploratory drilling and appraisal cost accounting), 109–127: accounting, 110–119; capitalized G&G, 120; time limit on exploration and evaluation or appraisal costs, 120–123; post-balance sheet period, 123–124; example, 124; cost approval, budgeting, and monitoring, 125–126; references, 127 Successful efforts (pre-license cost accounting), 73–108: prospecting and nondrilling exploration, 73–78; G&G activities, 75–79; support equipment and facilities, 79–81; reprocessing seismic, 82; license acquisition costs, 82–89; impairment of unproved property, 89–94; abandonment of unproved property, 95–96; partial abandonments or relinquishments, 97; post-balance sheet period, 97–98; unproved property reclassification, 98–99; cost centers, 99–100; reclassification with field as cost center, 101–103; sales of unproved property, 103–107; references, 108 Successful efforts cost method, 29–32, 75, 549 Support equipment and facilities (depreciation), 178–180: example, 179–180 Support equipment and facilities (full cost accounting), 225 Support equipment and facilities (pre-license cost accounting), 79–81: examples, 80–81; U.S., 80; UK, 80–81 Support equipment and facilities, 79–81, 137–138, 178–180, 225: pre-license cost accounting, 79–81; examples, 80–81, 179–180; depreciation, 178–180; full cost accounting, 225 Survey of U.S Petroleum Accounting Practices (2001), 90, 120, 140, 287 T Tailgate (plant), 249 Take-or-pay contracts (recognition of revenue), 299–302: examples, 300–302 Targeted depth (exploratory cost accounting), 112 Tax accounting, 25–26: income tax, 25–26; import duties, 25; 585 WGIndex(561-590).qxd 10/5/04 1:30 PM Page 586 International Petroleum Accounting employment tax, 25; severance tax, 25; production tax, 25; value added tax, 25; petroleum tax, 25; tax treaties, 26 Tax barrels (PSC), 56–57: example, 56–57 Traditional present value approach, 312, 333 Training and technology transfer (PSC), 45 Training program, 45, 385–386: technology transfer, 45; costs, 385–386 Turbine meters, 248 Tax holidays, 62 Tax law (U.S.), 112 Tax treaties, 26 Tax/royalty countries, 39 Taxes, 25–26, 39, 41, 56–57, 62, 112, 215–218, 231, 386–388, 555: accounting, 25–26; employment, 25; production, 25; income tax, 25–26, 39, 41, 215–218, 555; tax treaties, 26; tax/royalty countries, 39; tax barrels (PSC), 56–57; tax holidays, 62; U.S tax law, 112; investment credit, 215; ceiling limitation on capitalized costs, 215–218; direct charges, 386–388 Taxes/duties (direct charges), 386–388: example, 387–388 Technical training costs (direct charges), 385–386 Technology transfer (PSC), 45 Test production revenue recognition, 302–304 Theoretical production (well tests data), 236 Time limit (exploration/evaluation/appraisal costs), 120–123 Time writing, 381 586 U U.S GAAP (decommissioning and environmental costs), 328–350: overview, 328; scope, 329; legally enforceable obligations, 329–331; identifying obligating event, 331; recognition of related asset, 332; initial measurement and recognition, 332–333; credit-adjusted risk-free discount rate, 333; expected cash flow approach, 333–339; examples, 334, 336–344, 346–347, 349; market risk premiums, 335; salvage values, 337; subsequent recognition and measurement, 337–339; gain/loss recognition upon settlement, 340–344; reassessment, 344–345; impairment, 345–347; funding and assurance provisions, 347–349; other issues, 349–350; reporting and disclosures, 350 U.S GAAP (impairment costs), 307–316: background, 307–308; scope, 308; asset groups, 308–309; long-lived assets to be held and used, 309–314; WGIndex(561-590).qxd 10/5/04 1:30 PM Page 587 Index example, 313–314; long-lived assets to be disposed of, 314–316 U.S GAAP (recognition of revenue), 295–296 U.S GAAP, 4–5, 8, 15, 23–25, 30, 33, 71, 79, 90, 110, 123, 132, 136, 158, 161, 191, 208–211, 228, 230, 264, 271, 288, 295–296, 307–316, 328–350: recognition of revenue, 295–296; impairment costs, 307–316; decommissioning and environmental costs, 328–350 U.S Securities and Exchange Commission (SEC), ix, 1–2, 4, 23–24, 30–32, 71, 110, 154, 162, 181, 192–196, 204, 206–207, 210, 215, 220, 228, 288, 308, 420–421, 543–555: Accounting Rules Regulation S-X, Part 210, Rule 4-10, 23, 32, 110, 192–196, 204, 206–207, 210, 215, 308, 543–555; Staff Accounting Bulletin No 12, 192, 196, 215, 220; Interpretations and Guidance, 288; definitions, 544–549; successful efforts method, 549; full cost method, 549–555; income taxes, 555 UK GAAP (impairment costs), 321–325: impairment testing by full cost companies, 321–322; impairment testing by successful efforts companies, 322–325; example, 324–325 UK GAAP (recognition of revenue), 296–297 UK GAAP, 4–8, 15, 23–25, 30, 33, 76, 79, 111, 124, 132, 136, 158, 161, 167, 169, 191, 228, 264, 271, 288, 296–297, 307, 321–325, 421–422: recognition of revenue, 296–297; impairment costs, 321–325 Underlift and overlift (recognition of revenue), 288–295: sales method, 290–293; examples, 291–295; entitlements method, 293–295 Unevaluated properties (ceiling limitation on capitalized costs—U.S.), 215 Unevaluated property costs (exclusion), 200–203: example, 202–203 Unevaluated property impairment—UK (full cost accounting), 211 United Kingdom accounting requirements (decommissioning and environmental costs), 355–357: measurement, 355; changes in estimates, 356; funding and assurance provisions, 356; salvage values, 356; impairment, 356–357; example, 357 United Kingdom (UK), x, 2–8, 15, 19, 23–25, 29–30, 32–34, 76–81, 93–94, 111, 124, 130, 132–134, 136, 158–170, 191–194, 211, 221–224, 228, 264, 271, 288, 296–297, 307, 321–325, 355–357, 421–422: operations overlap, 19; financial accounting development, 32; accounting requirements, 355–357 See also UK GAAP United States (U.S.), x, 1–5, 8, 10–11, 15–16, 19, 24, 26–27, 29–32, 34, 75–76, 82, 90–93, 95–96, 110–112, 129–130, 159, 168–169, 174–175, 191–194, 196, 209–220, 222–224, 228, 307–316, 328–350: operations overlap, 19; financial accounting development, 30–32; accounting standards, 30–32 See also U.S GAAP Unitizations (recognition of revenue), 278–285: examples, 279–285 587 WGIndex(561-590).qxd 10/5/04 1:30 PM Page 588 International Petroleum Accounting Unit-of-production DD&A (cost accounting), 167–170: examples, 168–170; U.S., 168–169; UK, 170 Unit-of-production method (DD&A full cost accounting), 195–198: example, 197–198; amortization, 197–198 Unit-of-production method, 4, 167–170, 181, 195–198: DD&A cost accounting, 167–170; DD&A full cost accounting, 195–198 Un-merchantable oil, 236 Unproved properties (IAS 36 application), 320–321 Unproved properties, 89–99, 103–107, 200–203, 320–321, 323, 546: license acquisition, 89; impairment, 89–94; abandonment, 95–97; reclassification, 98–99; sales, 103–107; costs, 200–203; costs exclusion, 200–203; IAS 36 application; 319 definition, 546 Unproved property abandonment, 95–97: U.S., 95–96; examples, 95–96; partial abandonment/relinquishment, 97 Unproved property costs, 200–203: exclusion, 200–203; example, 202–203 Unproved property impairment, 89–94: U.S., 90–93; UK, 93–94 Unproved property reclassification, 98–99: examples, 98–99 588 Unproved property sales, 103–107: examples, 104–106 Upstream operations phases, 8–18: pre-license prospecting, 8–10; mineral right/interest acquisition/contracting, 8, 10–14; exploration, 8, 15; evaluation and appraisal, 8, 15–16; development, 9, 16–17; production, 9, 17; closure, 9, 18 Upstream petroleum operations, 1–20: oil and gas industry accounting standards, 1–3; international methods for reserve estimation, 3; use of reserves in financial accounting, 4; reserve definitions, 4–8; operations phases, 8–18; operations overlap, 18–19; references, 20 V Valuation (inventory), 285–288: point of production, 286–287; lower-of-cost-or-market valuation, 287–288 Value added tax (VAT), 25, 39, 41 Value-on-value method (allocating oil), 242–244: example, 244 WGIndex(561-590).qxd 10/5/04 1:30 PM Page 589 Index W–Z Weighted average calculation (unitization), 281–282: example, 281–282 Well tests gas allocations, 251–252: example, 251–252 Wet gas, 252 Working interest acquisition (proved property), 152–153: example, 153 Working interest method (DD&A cost accounting), 163–165: lease, 163; concession agreement, 164; examples, 163–164 Working interest, 36–37, 41, 152–153, 163–165: proved property acquisition, 152–153; examples, 153, 163–164; working interest method (DD&A), 163–165 World Petroleum Congress (WPC), 589 WGIndex(561-590).qxd 10/5/04 1:30 PM Page 590 ... Charlotte J International petroleum accounting / Charlotte J Wright and Rebecca A Gallun p cm ISBN 1-59370-016-4 Petroleum industry and trade Accounting International business enterprises -Accounting. ..WG00(i-x).qxd 10/5/04 12:35 PM Page i INTERNATIONAL PETROLEUM ACCOUNTING WG00(i-x).qxd 10/5/04 12:35 PM Page ii WG00(i-x).qxd 10/5/04 12:35 PM Page iii INTERNATIONAL PETROLEUM ACCOUNTING Charlotte J Wright,... 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 Accounting