The document provides an overview of accounting principles for upstream oil and gas, including PSC accounting. It discusses the full cost and successful efforts accounting methods, accounting for acquisition, exploration, development and production costs. PSC accounting differs in its treatment of these costs compared to GAAP. Specifically, under PSC accounting certain exploration and development expenditures are expensed rather than capitalized. The document also covers other PSC considerations like cost recovery, domestic market obligations and investment credits.

1. Overview of Oil and Gas Accounting & PSC Accounting Budi Hartono

20. 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

21. 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

38. FLOW OF PSC

40. 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

41. 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

42. 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

43. 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

44. 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