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arrow_back In what ways is oil and gas accounting different?

in Business accounting Accounting Expert
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What are some aspects of accounting and financial reporting that are specific to the oil and gas industry?

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Accounting and financial reporting of the oil and gas industry is specialist area which requires thorough understanding of the industry and expertise. It is a complex topic whose challenge stems from the treatment of unsuccessful exploration costs.

Oil and Gas costs and their treatments are as follows:

  • Acquisition Costs – Capitalised & amortised
  • Exploration Costs – Depends as below
  • Development Costs - Capitalised & amortised
  • Production Costs - Expensed

Exploration Costs: There are 2 accounting methods: ‘Successful efforts’ and ‘Full cost’ accounting. Both are considered acceptable accounting methods and are up to the discretion of the company adopting them.

 Full costs (FC) method

• All exploration results (dry holes and discoveries) can be capitalised and then amortized over their estimated lives

• Impairment tests should be carried out on the book value of Oil and Gas assets

Successful efforts (SE) method

• Unsuccessful exploration results (dry holes) should be expensed as incurred

• Only successful explorations are capitalised and then amortized over their estimated lives

• Impairment tests are not required to be carried out

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