International Accounting for Oil and Gas

Course Description

The commercial and operational practices of the upstream oil and gas industry pose unique challenges to accountants who need to operate under multiple reporting frameworks with conflicting accounting methods and with unique contractual arrangements such as production sharing contracts and joint venture arrangements. This course considers the IFRS accounting practices that are applied in relation to exploration, development and production.

Course Objectives

  • Describe the international accounting frameworks that influence how upstream oil and gas is accounted for and reported
  • Discuss the differing types of contractual arrangements, including tax and royalty, production sharing contracts and joint ventures
  • Determine appropriate accounting policies consistent with IFRS, in particular those applied during exploration, development and production
  • Apply accepted capitalisation rules and depreciation methods
  • Account for the impact of asset impairments
  • Account for oil and gas revenues
  • Consider the accounting treatment of inventories, leases and foreign currency transactions
  • Analyse and interpret the result of E&P businesses including the use of accepted oil and gas reserves-based ratios

Who Should Attend

Accounting professionals who require an in depth understanding of oil and gas accounting procedures. It will particularly benefit

  • Staff who are taking on increased financial or accountancy responsibilities including: Chief Accountants, Financial Accountants, Accounting Clerks, Joint Venture and Joint Operating Agreement Accountants, Internal and External Auditors, Financial Analysts from financiers and regulators
  • Those accountants, auditors and analysts who are relatively new to the oil and gas industry
  • Staff from government departments who are working with or auditing oil and gas companies and contracts

Participants should already have a working knowledge of general accounting principles and practices.  Non-financial managers and staff who need an introduction to the financial concepts underpinning an upstream business should consider attending our course, Core Concepts in Upstream Finance and Accounting.

 

Continuing Professional Development

28 HOURS CPD

 

Course Content

  • International accounting frameworks – IFRS and the influence of US GAAP
  • Accounting issues posed by oil and gas contracting arrangements
  • Accounting for exploration and development - successful efforts and full cost capitalisation methods of accounting
  • Impairment of unproved and proved and producing properties
  • Application of units of product depreciation methods
  • Accounting for rehabilitation and remediation
  • Revenue recognition issues
  • Accounting for inventory
  • Cost allocations
  • Accounting for taxation
  • Foreign currency transactions
  • Analysis of reserves disclosures

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
  • Overview of traditional financial reporting methods; full cost accounting vs. successful efforts
  • Influence, authority and relevance of US accounting treatments for IFRS preparers

2. Prospecting, exploration and evaluation

  • Review of full cost vs successful efforts
  • How IFRS modifies the full cost and successful effort methods
  • Use of framework and IFRS 6 to determine treatments
  • Acquisition of mineral interests
  • Use of cost centres
  • How to treat dry holes
  • Presentation and disclosures

CASE STUDY – COMPARING SUCCESSFUL EFFORTS WITH FULL COST CAPITALISATION ACCOUNTING

Day 2

3. Asset impairment principles and application to unproved property

  • Overview of economic valuation methods including DCF model, IRR, NPV, market value and fair value
  • Impairment testing principles under IFRS
  • Impairment testing of exploration assets; indicators and methods
  • Cost centres for impairment testing; full cost vs. successful efforts
  • Impairment testing on completion of the project evaluation

CASE STUDY – IMPAIRMENT TESTING UNPROVED PROPERTIES

4. Accounting for development

  • Applying IAS 38 and the IASB framework
  • Treatment of intangible development costs
  • Capitalisation of borrowing costs (IAS 23)
  • Treatment of dry holes and inefficiencies
  • Impairment testing
  • Cost centres, direct and indirect cost allocation
  • Acquisitions of proved reserves

CASE STUDY - CAPITALISING AND ALLOCATING DEVELOPMENT COSTS

5. Provisions & asset retirement obligations (IAS 37 and IFRIC 1 and IFRIC 5)

  • Definitions, measurement and when to provide
  • Disclosures and treatment of un-utilised provisions
  • Capitalisation of asset retirement obligations
  • Accounting for environmental clean-up costs
  • Accounting for rehabilitation funds

CASE STUDY - MEASUREMENT AND SUBSEQUENT REMEASUREMENT OF ASSET RETIREMENT OBLIGATIONS

Day 3

6. Accounting for production

  • General principles of accounting for property plant and equipment (IAS 16)
  • Application of IAS 16 PP&E to upstream
  • Cost centres and cash generating units in the upstream business
  • Units of production depreciation method
  • Impairment testing (application of IAS 36)
  • Treatment of direct production costs and overheads

CASE STUDIES - DEPRECIATION AND IMPAIRMENT TESTING

7. Leasing activities (IAS 17)

  • Types of leased equipment and leasing arrangements found in the industry
  • Accounting by the lessee for finance and operating type leases
  • Application of IFRIC 4 contracts containing leases
  • Update – overview of IFRS 16 and its impact

CASE STUDY – ACCOUNTING TREATMENT OF FINANCE LEASES

8. Foreign currency transactions (IAS 21)

  • Determining the functional currency of the operation
  • Measuring the foreign currency transaction at initial recognition
  • Identifying and remeasuring monetary items
  • Treatment of FX gains and losses

CASE STUDY – ACCOUNTING FOR FX GAINS AND LOSSES

Day 4

9. Revenue recognition (IAS 18) and production inventories (IAS 2)

  • Revenue recognition and measurement issues for the oil and gas industry
  • Treatments of royalty taxes
  • Accounting for production inventory
  • Revenue update: overview of IFRS 15, revenue from contracts with customers and expected impact on the industry

CASE STUDIES – REVENUE RECOGNITION POINTS AND REVENUE MEASUREMENT

10. Tax accounting in the oil and gas industry (IAS 12)

  • Overview of general principles for accounting for taxation under IFRS
  • Current and deferred tax treatments
  • Overview of taxation arrangements in relation to oil and gas
  • Sales taxes and royalties vs. income taxes

11. Oil and Gas reserves and their analysis

  • Adoption of alternative accounting guidance in the absence of IASB standards
  • Measuring and disclosing reserves; requirements of SEC / US GAAP
  • Illustrations from published disclosures
  • Review of IASB discussion paper on extractive industries

CASE STUDY – ANALYSIS OF OIL AND GAS RESERVE DISCLOSURES

 

12. Conclusions

  • Course summary and review

 

Location

Date

 

Houston, Texas, United States

 

 

6-9 November 2017

 

London, United Kingdom

 

 

11-14 December 2017

 

Dubai, United Arab Emirates

 

 

18-21 February 2018