Accounting for Joint Operations and Production Sharing Contracts Training

• Reap of principles of IFRS applying to upstream business
• Accounting issues posed by oil and gas contracting arrangements
• Types of joint arrangements
• Operator accounting procedures
• Under and overlift
• Accounting by the investor in its joint venture
• Typical terms found in PSCs and JOAs
• Differences between costs recoverable under PSCs and their treatments in the IFRS books
• Calculating production sharing
• Understanding the economics of the PSC
• Accounting for sales, swaps and farm/in farm outs between venturers

Day 1

1. Overview of oil and gas accounting issues

• Nature of oil and gas entities and commercial arrangements
• Types of accounts required by upstream oil and gas entities
• The joint venture agreement
• Background to and development of production sharing contracts
• Relevance of IFRS and US GAAP

2. Principles of upstream accounting – refresher

• Overview of the key accounting principles of financial reporting in E&P
• Successful efforts vs. full cost capitalisation
• Exploration, development and production

CASE STUDY – COMPARISON OF FINANCIAL ACCOUNTING RESULTS UNDER DIFFERING ACCOUNTING POLICIES

3. Joint venture principles

• The nature of joint ventures and reasons why oil and gas companies participate in them
• Types of joint venture arrangements and their structure
• Typical provisions of joint venture agreements
• Relationship between operator and non-operator participants

4. Accounting by the operator

• Model accounting procedures
• Budgets and approvals
• Cash calls
• Billing statements and reporting of expenditures
• Cost allocation methods, including operator accounting for materials inventory and overheads
• Responsibility of operator to provide sufficient timely information
• Audits and dispute resolution

CASE STUDY – PREPARING CASH CALL REQUESTS AND JOINT BILLING STATEMENTS

Day 2

5 .Revenue

• Sales arrangements within joint ventures
• Review of principles of revenue recognition
• Accounting for under and overlift

CASE STUDY – CALCULATING AND DISPOSING OF UNDER AND OVERLIFT

6. Reporting of joint arrangements in the IFRS financial statements

• IFRS 11 joint arrangements and IAS 28 accounting for associates and joint ventures
• Equity methods of accounting
• Treatment of dividends, interest and repayments of principal to Parent Company after commercial production
• Responsibilities for correct IFRS reporting by operator / non-operator
• Accounting for exploration, development and production costs by the operator / non-operator

CASE STUDY – ACCOUNTING BY THE INVESTOR AND INVESTEE FOR CASH AND NON-CASH CONTRIBUTIONS

7. Contracting and partnering arrangements

• Oil and gas contracting arrangements: different types (PSC, risk sharing, tax and royalty), purpose and their impacts upon financial reporting
• The life cycle of a production sharing contract
• Production sharing contacts and key provisions of the agreement
• The accounting procedure within the PSC
• Role of the national petroleum company

CASE STUDY –  IDENTIFYING THE KEY ACCOUNTING ISSUES POSED BY DIFFERENT CONTRACTUAL ARRANGEMENTS AND ACCOUNTING FRAMEWORKS

8. The mechanics of production sharing contracts

• Mechanics of cost oil recovery, allocation and profit oil
• Review of recoverable and non-recoverable costs through the oil and gas life-cycle
• Treatment of rehabilitation funds
• Calculating the production share and resulting revenue

CASE STUDY: CALCULATING COST OIL AND PROFIT OIL UNDER PSC’S

Day 3

9. PSC economics and reserves

• What expenditures are cost recoverable?
• The impact of changing prices and volumes on production sharing
• The effects of caps on cost oil recovery
• The impact of mechanisms such as R-factors, capital uplifts and depreciation
• Running reserves under PSCs
• Reporting reserves from PSCs

CASE STUDY – RUNNING SCENARIOS ON VOLUMES AND RESERVES

10. Accounting for the tax treatment of PSCs

• Typical tax treatments under PSCs
• Distinguishing between income and sales type taxes
• Tax barrels and treatment of taxes paid on behalf of

11. Conveyances and business combinations

• Distinguishing acquisitions of assets from acquisitions of businesses
• When is IFRS 3 acquisition accounting applied and what is the business?
• Application of IFRS 3 to acquisitions of businesses
• Nature of conveyance arrangements
• Pooling and unitisations and adjustment of interests
• Accounting for farm-ins and farm-outs and carried interests
• Disposal gains and possible tax consequences

CASE STUDIES: ACCOUNTING FOR UNITISATIONS AND FARM IN / FARM OUT BETWEEN VENTURERS