SESI 2 INTRODUCTION OIL & GAS ACCOUNTING

Akuntansi Perminyakan
1

Fakultas Ekonomi Universitas Riau

Pengasuh

Dr. H. Kasman Arifin SE.,Ak.,MM

TUJUAN PEMBELAJARAN

1.

2.

3.

Untuk mengetahui alat ukur dalam industri perminyakan Mengetahui dilema dalam akuntansi perminyakan Memahami implementasi dari historical cost accounting methods di industri perminyakan

BAGIAN 1. RENCANA PEMBELAJARAN

Chemistry & Measurement Reserve Value Accounting Dilemmas Historical Cost Accounting Methods Historical Development of Accounting Methods and Current Status

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 (standard industry American Petroleum Institute). Natural gas refers to hydrocarbon mixtures that are 4 not liquid, but gaseous at normal atmospheric pressure and temperature

CHEMISTRY & MEASUREMENT

Natural gas may also contain some of the larger hydrocarbon molecules commonly found in nature :
Ethane (C2H6) y Butane (C4H10) y Propane (C3H8) y Natural gasoline (C5H12 to C10H22)
y

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

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 British thermal units (MMBtu). By volume, which is expressed ini :
Mcf (thousand cubic feet) y MMcf (million cubic feet) y Bcf (billion cubic feet) y Tcf (trillion cubic feet)
y

Crued Oil is measured in the U.S by volume expressed as barrels (bbl). A barrel equates to 42 U.S gallons
6

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. 7 Possible Reserve : Less likely (10%) to be recoverable.

RESERVE VALUE
Petroleum Exploration and production economics is based 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

RESERVE VALUE
E&P financial statement accounting recognizes the economic importance of reserves in three ways : Capitalized cost of properties with proved reserved (proved properties) are amortized on a unit-ofproduction method based the ratio of volumes produced during the period to the sum of volumes and remaining proved reserves at the end of the period. Proved properties, net capitalized costs are limited to certain computations of value of the underlying proved reserves. Public companies must disclosure, with audited financial statements, certain supplemental unaudited information on the proved reserve 9 volumes and certain related values

BAGIAN 3. ACCOUNTING DILEMMAS

The nature of petroleum exploration and production rises numerous financial reporting issues. Some of these challenges include, but are not limited to

Given the modest success rates for exploratory wells, should well costs be treated as assets or expenses ? Should the cost of dry hole be capitalized as a cost of finding oil and gas reserves ? Suppose a company drills five exploratory wells costing $ 1 million each, but only one well finds a reservoir worth $ 20 million to company. Should the company recoqnize an asset for the total $ 5 million of cost, the $1 million cost of the successful well, the $20 million value 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 fluctuate widely. Should such value fluctuation affect the amounts of the related assets presented in financial statements ? If production declines over time and productive life varies by property, 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 gas properties. Cost of Exploratory dry holes, G&G Cost in General and other property carrying Cost are expensed. Amortization is calculated using Unit Of Production (UOP) method on lease or field basis 12

HISTORICAL COST ACCOUNTING METHODS

2. Full Cost Method (FC) ASR 258


All costs of Acquisition, Exploration and Development activities, 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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COMP ARISON AMONG SE, FC AND PSC

NO STAGE DESCRIPTION SUCCESSFUL EFFORT CAPITAL EXPENSE EXPENSE CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL EXPENSE FIELD, RESERVOIR UOP & SL BASED ON ACTUAL USAGE FULL COST PSC NON COST RECOVERY ( TAXABLE) EXPENSE EXPENSE EXPENSE CAPITAL EXPENSE CAPITAL CAPITAL EXPENSE AREA DB, DDB, SL

1 2 3 4 5 6 7 8 9 10 11

ACQUISIT ACQUISITION COST ION

CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL EXPENSE COUNTRY UOP & SL BASED ON ACTUAL USAGE

E X P L O O N R A T I D E V E L O P

GEOLOGICAL &GEOPHYSICAL EXPLORATORY WELL - DRY HOLE EXP. WELL - SUCCESS - INTANGIBLE EXP. WELL - SUCCESS - TANGIBLE DEVELOPMENT WELL - INTANGIBLE

M E N T

DEVELOPMENT WELL - TANGIBLE PRODUCTION & SUPPORTING FACILITIES

PRODUCT PRODUCTION COST ION

COST CENTRE
OTHER

DEPRECIATION METHOD

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MRO

FULL LANDED COST

FINANCIAL STATEMENT
Tyler Oil Company began operations on March 3, 2010, with the acquisition of a lease in Texas. During the first year, the following cost were incurred, DD&A recognized, and the following revenue was earned :
G & G Costs .... Acquisition cost s. Exploratory dry holes . Exploratory wells, successful Development cost s Production costs DD&A expense .. Revenue . 60,000 100,000 1,400,000 800,000 500,000 50,000 40,000 (SE) 90,000 (FC) 250,000
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FINANCIAL STATEMENT
Income Statement
Successful Efforts Revenue Expenses :
$ 250,000 $ 0 0 50,000 90,000 140,000 $ 110,000

Full Cost
$ 250,000

G&G $ 60,000 Exploratory dry holes 1,400,000 Production costs 50,000 DD&A 40,000

Total expense Net Income

1,550,000 $ 1,300,000)

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FINANCIAL STATEMENT
Partial Balance Sheet
Successful Efforts G & G Cost Acquisition Cost Exploratory dry holes Exploratory wells, successful Development costs Total Asset
Less : Accumulated DD & A $ 150,000

Full Cost
$ 60,000 100,000 1,400,000

800,000 500,000 1,400,000 ( 40,000) $ 1,360,000)

800,000 500,000 2,860,000 (90,000) $ 2,770,000

Net Income

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HISTORICAL DEVELOPMENT OF 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 the characteristics 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

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, development activities Result s of operations for oil & gas producing activities

and

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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

Nondrilling costs Drilling costs

No, Impaired abandoned

Are reserve s found Yes, Proved reserves

No, dry

Are reserve s found Yes, Proved reserves Add cost to amortization based (wells and equipment)

Add cost to amortization based

Amortized on the basis of production (PR)

Amortized on the basis of production (PDR) Change to the Income Statement

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OVERVIEW OF ENTRIES SUCCESSFUL EFFORTS

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 find oil 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 On January 15, Tyler Company acquires a 100-acre lease, paying a $ 500-peracre bonus (acquisition cost) Entry Unproved property (100x$500) 50,000 Cash .. 50,000 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 22

b.

c.

OVERVIEW OF ENTRIES SUCCESSFUL EFFORTS

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 On June 3, Tyler Company incurs $ 50,000 in production costs (production cost). Entry Production expense 50,000 23 Cash .. 50,000

f.

INTRODUCTION TO FULL COST ACCOUNTING

Incured acquisition costs Or Capaitalized as unproved property Incured exploration costs (drilling & nondrilling Incured development costs Incured production costs

Are reserve s found No, Impaired abandoned Capitalize as impaired or abandoned costs

Yes, Proved Reserves found

Add cost to amortization based (wells and equipment)

Amortized on the basis of production (PDR)

Income Statement

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OVERVIEW OF ENTRIES FULL COST

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 find oil 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 On January 15, Tyler Company acquires a 100-acre lease, paying a $ 500-peracre bonus (acquisition cost) Entry Unproved property acquisition 50,000 Cash .. 50,000 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 25

b.

c.

OVERVIEW OF ENTRIES FULL COST

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 .. 850,000 On June 3, Tyler Company incurs $ 50,000 in production costs (production cost). Entry Production expense 50,000 Cash .. 50,000 26

f.

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