All property acquisition, exploration and development costs, even dry hole costs, are capitalized as oil and gas properties.
These costs are amortized using a unit-of-production method based on volumes produced and remaining proved reserves.
The net unamortized capitalized costs of oil and gas properties less related deferred income tax MAY NOT exceed a ceiling consisting primarily of a computed present value of projected future cash flows, after income taxes, from the proved reserves.
Only the cost of successful efforts is capitalized.
Cost of exploratory dry holes, geological and geophysical (G&G) costs in general, delay rentals, and other property carrying costs are expensed.
The net unamortized capitalized costs are amortized on unit-of-production method, whereby property acquisition costs are amortized over proved reserves and property development costs are amortized over proved development reserves.
Costs incurred to purchase, lease, or otherwise acquire a property (whether unproved or proved). They include the costs of lease bonuses and options to purchase or lease properties, the portion of costs applicable to minerals when land including mineral rights is purchased in fee, brokers' fees, recording fees, legal costs, and other costs incurred in acquiring properties
Drilling carried out to determine the physical extent, reserves and likely production rate of a field.
Accounting for appraisal wells under IFRS tends to be based on whether the field or the reservoir is ultimately determined to be successful and developed, justifying the capitalization of dry appraisal wells in the same field.
Under US GAAP, an appraisal well is treated exactly the same as an exploration well and should be written-off if unsuccessful, even the very same field or reservoir is determined to be successful and developed.
Gain access to and prepare well locations for drilling such as clearing ground, draining, road building, gas and power lines;
Drill and equip development wells including the costs of platforms and of well equipment such as casing, tubing, pumping equipment, and the wellhead assembly;
Acquire, construct and install production facilities such as lease flow lines, separators, production storage tanks, natural gas cycling and processing plants, and central utility and waste disposal system .
Costs incurred to operate and maintain wells and related equipment and facilities, including depreciation, and applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities.
Under IFRS impairment includes license acquisition costs and exploration and appraisal costs
Exploration licenses in unproved properties must be assessed periodically (at least annually).
If dry hole has been drilled and there are no firm plans for further drilling or appraisal activities, the property would be impaired.
Under US GAAP, FAS 121 are applicable for proved properties and related equipment, and facilities whereas unproved properties are subject to the impairment provision FAS 19 (Accounting for Suspended Well Costs).
Decommissioning costs are typically cost recoverable based on actual cash funding.
Most PSCs have decommissioning obligations for the contractor, despite ownership of assets by government.
Usually cash funding is required to make sure there will be enough fund to carry out decommissioning activities. Both contractor and government have control over the cash fund.
Full Cost vs Successful Efforts Accounting Production costs Development costs Specific pre-licence, licence acquisition, exploration and appraisal costs General costs prior to acquisition of licence SUCCESSFUL EFFORTS FULL COST Costs
Full Cost vs Successful Efforts Accounting Expensed Expensed Capitalised Capitalised Capitalise initially then write off, unless commercial reserves established Capitalised Expensed Expensed SUCCESSFUL EFFORTS FULL COST Production costs Development costs Specific pre-licence, licence acquisition, exploration and appraisal costs General costs prior to acquisition of licence Costs
All non-capital and Intangible Drilling Costs (IDC) exploration expenditures are expensed as operating expenditures as incurred, without considering whether they relate to a successful or unsuccessful exploration. Whilst for Tangible Drilling Costs (TDC) exploration, is capitalised for successful exploration and is classified as non-capital for unsuccessful expenditures.
DD&A will be calculated beginning the year in which the assets is placed into service. The method used to calculated the DD&A is double declining balance method, whereby in the last year, the residual value is recovered in full and therefore does not consider the amount of reserves
it is probable that future economic benefits associated with the item will flow to the entity; and
the cost of the item can be measured reliably.
Expense Capitalize Capitalize Expense Capitalize Capitalize Expense Expense Capitalize Exploration expenditures: Dry hole Successful: - IDC - TDC Capitalize as long as meet with IFRS assets recognition criteria* Capitalize Expense Acquisition cost IFRS US GAAP PSC
PSC Accounting vs GAAP A dry appraisal could still be carried forward in the Balance Sheet, provided that the intend to drill more wells or to develop the field still exists. Unsuccessful exploratory wells drilled to delineate a potential reservoir are expensed A dry appraisal could still be carried forward in the Balance Sheet, provided that the intend to drill more wells or to develop the field still exists. Appraisal drilling IFRS US GAAP PSC
PSC Accounting vs GAAP Not specified. Capitalized as long as meet with IFRS assets recognition criteria Not specified. Capitalized as long as meet with IFRS assets recognition criteria Capitalize Capitalize Capitalize Expense Expense Capitalize Development expenditures Dry hole Successful: - IDC - TDC Capitalize Capitalize Capitalize Supporting equipment and facilities IFRS US GAAP PSC
PSC Accounting vs GAAP Accrual basis based on the discounted present value of the expected expenditures required to settle the obligation Accrual basis based on the discounted present value of the expected expenditures required to settle the obligation Cash basis (pay as you go) Big table liabilities / severance Expensed/impaired upon identified Expensed/impaired upon identified Write off upon approved by BPMIGAS Obsolete inventory or assets Expensed as consumed Expensed as consumed Expensed upon receipt Non-capital inventory Not specified, to be allocated over useful life, reflecting consumption of assets’ benefits Unit of production Double decline DD&A of capital costs IFRS US GAAP PSC
PSC Accounting vs GAAP Accrual basis - based on the discounted present value of the expected expenditures required to settle the obligation. The provision should be provided as soon as the decommissioning obligation is created, which is normally when the facility is constructed and the damage that needs to be restored is done. Accrual basis - based on the discounted present value of the expected expenditures required to settle the obligation. The provision should be provided in the period in which it is incurred if a reasonable estimate of fair value can be made, or as soon as a reasonable estimate of fair value can be made. Cash basis. New recent PSC contract – accrual basis, but no further guidance issued yet by BPMIGAS. Abandonment / decommissioning liabilities IFRS US GAAP PSC
PSC Accounting vs GAAP The same as US GAAP, except that an impairment loss (downward revaluation) may be offset against revaluation surpluses to the extent that it relates to the same asset; any uncovered deficit is recorded to the income statement. All impairments are recognised in the income statement. Written off assets upon agreement from BPMIGAS Impairment IFRS US GAAP PSC