Oil and Gas Property Aaccounting Types
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Oil and Gas Property Aaccounting Types

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Success in the oil and gas industry demands a team of professionals who understand the complexities and challenges of the industry. ...

Success in the oil and gas industry demands a team of professionals who understand the complexities and challenges of the industry.

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  • 1. PriceKubecka a Dallas CPA Firm 16775 Addison Rd. Suite 500 Addison, TX 75001 Innovative Accounting. Empowering Business. 972-888-0950
  • 2. Oil and Gas Property Accounting TypesSuccess in the oil and gas industry demands a team of professionals who understand the complexities and challenges of the industry. 16775 Addison Rd. Suite 500 Addison, TX 75001 Innovative Accounting. Empowering Business. 972-888-0950
  • 3. Oil and Gas Depletion from a U.S. GAAP perspective• Companies engaged in the exploration and development of oil and gas have the choice of choosing between 2 accounting methods. These 2 methods differ in the treatment of costs incurred in exploring for, acquiring and developing reserves.• Full Cost• Successful Efforts 16775 Addison Rd. Suite 500 Addison, TX 75001 972-888-0950 Innovative Accounting. Empowering Business.
  • 4. Full Cost Method• Easiest to use, groups all properties together by country.• All property costs including acquisition, exploration and development are capitalized, regardless of the outcome.• The net unamortized capitalized expenses less related deferred income tax can not surpass a ceiling consisting of a calculated present value of expected future cash flows, after income taxes, from the proven reserves. 16775 Addison Rd. Suite 500 Addison, TX 75001 Innovative Accounting. Empowering Business. 972-888-0950
  • 5. Successful Efforts Method• With this method, acquisition and development costs are capitalized. Exploration costs, such as G&G costs and unsuccessful exploratory wells are expensed.• Capitalized costs are accumulated either by property, field, or reservoir.• This method is most closely aligned with IFRS accounting rules. 16775 Addison Rd. Suite 500 Addison, TX 75001 972-888-0950 Innovative Accounting. Empowering Business.
  • 6. Tax Methods• For tax purposes there are 2 types:• Percentage depletion• Cost depletion 16775 Addison Rd. Suite 500 Addison, TX 75001 Innovative Accounting. Empowering Business. 972-888-0950
  • 7. Percentage Depletion• This method is available for individuals who own property in the U.S. for their own economic interest.• It is not available if own a refinery or you are a retailer.• The deduction for the recovery of one’s capital investment is a fixed % of the gross income from the sale of the oil or gas. Percentage depletion is calculated using a rate of 15% of the gross income based on the average daily production, equal to the depletable oil or gas quantity.• An attractive element is that the cumulative depletion deductions may be in excess of the capital amount spent to acquire the property. 16775 Addison Rd. Suite 500 Addison, TX 75001 972-888-0950 Innovative Accounting. Empowering Business.
  • 8. Cost Depletion• This is an accounting method in which costs of the natural resources are distributed to depletion over the life of the asset.• A taxpayer can recover the actual capital investment throughout the period of income production.• Every year, the taxpayer can deduct a portion of the original investment, minus previous deductions, that is equal to the fraction of the estimated remaining recoverable reserves that have been produced and sold that year.• The total amount recovered under this method can never exceed the taxpayer’s original capital investment. 16775 Addison Rd. Suite 500 Addison, TX 75001 972-888-0950 Innovative Accounting. Empowering Business.
  • 9. We understand the oil and gas industry and how to assess and accomplish your financial opportunities and risks. You can consider us a long-term partner devoted to your success. Call us today at 972-888-0950. 16775 Addison Rd. Suite 500 Addison, TX 75001 972-888-0950 Innovative Accounting. Empowering Business.