Table of Contents

Chapter 1 - Overview of Oil and Gas Operations. 1

Essentials of Oil and Gas. 1

Oil and Gas Geology. 1

Exploration Activities. 2

Drilling and Development Activities. 3

Production Activities. 4

Nonconventional Activities. 5

Regulatory Requirements. 5

Structure of the Oil and Gas Industry. 5

Oil and Gas Business Activities. 6

Ownership Arrangements. 7

Joint Interest Operations. 9

The Land Department 9

Mineral Interest Documentation. 10

The Authorization for Expenditure. 10

Conveyances. 10

Gas-Balancing Arrangements. 11

Derivative Commodity Contracts. 11

International Business Activities. 12

Chapter 2 - Overview of Oil and Gas Accounting. 14

Cost Classifications. 15

Basis for the Successful Efforts and Full Cost Methods. 15

Property, Plant, and Equipment 16

Accounting for Production. 18

Revenue Accounting. 19

Oil and Gas Reserves. 19

Transfers of Mineral Interests. 19

Joint Interests. 20

Interest Capitalization. 20

Asset Retirement Obligations. 20

Asset Impairment 20

Foreign Exchange Issues. 21

Business Combinations. 21

Record Keeping. 21

Chapter 3 - Successful Efforts Method. 23

Successful Efforts Method. 23

Chart of Accounts Using the Successful Efforts Method. 26

Indirect Exploration Costs. 29

Special Treatment of Acquisition Costs. 31

Delinquent Payments. 32

Internal Costs. 32

Lease Options. 32

Purchases in Fee. 33

Treatment of Unproved Property. 33

Exploratory vs. Development Drilling Costs. 37

Sufficient Progress Assessment 38

Development Costs. 38

Special Drilling Activities. 39

Reimbursements. 40

Subsequent Events. 40

Chapter 4 - Full Cost Method. 43

Full Cost Method. 43

Acquisition, Exploration, and Development Costs. 44

Production, General and Administrative Costs. 44

Cost Amortization. 44

Cost Exclusions. 45

Impairment of Unproved Properties. 47

Transfers to Proved Property. 48

Property Sales and Abandonments. 48

Treatment of Purchased Reserves. 48

Management and Service Fees. 49

Chart of Accounts Using the Full Cost Method. 49

The Ceiling Test 52

Additional Disclosure Requirements. 54

Chapter 5 - Depreciation, Depletion, and Amortization. 56

DD&A Terminology. 56

DD&A Differences for the Successful Efforts and Full Cost Methods. 56

Successful Efforts Method. 56

Full Cost Method. 57

The Unit of Production Method. 57

Full Cost Method Variations on the Unit of Production Method. 62

The Unit of Revenue Method. 63

DD&A Rate Changes. 63

Amortization of a Production Payment Interest 64

Depreciation. 64

Issues for Nonworking Interests. 66

Accounting for Asset Dispositions. 66

Chapter 6 - Accounting for Production Costs. 69

Production Activities. 69

Treatment of Inventory. 70

Cost Accumulation Levels. 70

Sample Accounting Entries. 71

Chapter 7 - Revenue Accounting. 74

The Selling Process. 74

Division Orders. 75

Revenue Recognition Principles. 75

Revenue Recognition Application. 76

Severance Taxes. 76

Recordation of Oil Revenue. 76

Oil or Gas Used on the Premises. 78

The Gas Unit of Measure. 78

Recordation of Gas Revenue. 79

Flared Gas. 81

Stored Gas. 81

Take-or-Pay Arrangements. 81

Producer Gas Imbalances. 82

Pipeline Gas Imbalances. 83

Shipping and Handling Costs. 83

Chapter 8 - Reserve Reporting. 85

Types of Reserves. 85

Proved Reserves. 86

Proved Undeveloped Reserves. 87

Proved Reserves under Production Sharing Arrangements. 88

Other Types of Reserves. 88

Variability of Reserve Amounts. 88

The Reserve Report 89

Chapter 9 - Transfers of Mineral Interests. 91

Accounting for Specific Transactions. 91

Nonmonetary Exchanges. 91

Free Wells. 92

Unitization. 93

Sale of an Interest in Unproved Property. 94

Sale of an Interest in an Unproved or Proved Property. 95

Obligation to Deliver a Specific Quantity of Oil or Gas. 95

Chapter 10 - Joint Interest Accounting. 99

Essential Joint Interest Transactions. 99

Recordation of Joint Costs. 99

Nonconsent Operations. 100

Materials Accounting. 101

Joint Interest Audits. 101

Chapter 11 – Interest Capitalization. 104

Overview of Capitalized Interest 104

Assets on Which to Capitalize Interest 104

The Interest Capitalization Period. 105

The Capitalization Rate. 106

Calculating Interest Capitalization. 107

Chapter 12 - Asset Retirement and Environmental Obligations. 111

Overview of Asset Retirement Obligations. 111

The Initial Measurement of an Asset Retirement Obligation. 112

Subsequent Measurement of an Asset Retirement Obligation. 113

Settlement of an Asset Retirement Obligation. 114

Overview of Environmental Obligations. 116

Measurement of Environmental Obligations. 118

Recoveries Related to Environmental Obligations. 119

Asset Retirement and Environmental Obligations Disclosures. 120

Asset Retirement Obligations. 120

Environmental Obligations. 121

Chapter 13 - Asset Impairment 124

Fixed Asset Impairment 124

The Asset Grouping. 124

The Impairment Process. 124

Impairment Indicators. 125

The Impairment Test 125

The Impairment Loss. 126

Assets Held for Sale. 128

Related Topics. 128

Chapter 14 - Oil and Gas Disclosures. 131

Disclosure Requirements. 131

Public Company Disclosure Requirements. 133

Proved Oil and Gas Reserve Quantities. 133

Capitalized Costs Relating to Oil and Gas Producing Activities. 135

Costs Incurred for Property Acquisition, Exploration, and Development Activities. 135

Results of Operations for Oil and Gas Producing Activities. 136

Standardized Measure of Discounted Future Cash Flows. 137

Changes in the Standardized Measure of Discounted Future Net Cash Flows. 138

Interim Reporting. 139

Chapter 15 - IFRS Accounting for Oil and Gas. 141

Accounting for Mineral Resources. 141

Accounting for Stripping Costs. 142

Mineral Resources Presentation. 143

Mineral Resources Disclosures. 143

Chapter 16 - Auditor Inquiries. 145

Structural Inquiries. 145

Control and Procedure Inquiries. 146

Risk Analyses. 146

Examination of Estimates. 147

Cost Analyses. 147

Revenue Analyses. 149

Receivable Analyses. 149

Inventory Analyses. 150

Workover Cost Analysis. 150

Overhead Analysis. 150

Payables Analysis. 150

Commitments Investigation. 151

Related Party Transactions. 151

Reserves Investigation. 151

Management Representations Letter. 152

Use of Outside Experts. 153

Chapter 17 - Accounting Controls. 155

Controls for Property and Lease Acquisitions. 155

Controls for Exploration and Development Activities. 156

Controls for Production. 157

Controls for Nonoperators. 158

Controls for Disclosures and Reports. 158

Contractual Controls. 158

Answers to Chapter Questions. 160

Glossary. 179

Index. 184

 

Final Examination………………………………………………………………………………………………….188