This article addresses the practice of adding back total exploration expenses or exploratory dry-hole expenses in preparing cash flow statements for successful efforts (SE) firms. Comparing SE and full-cost (FC) rules and the objectives of SFAS No. 95 with an analysis of the cash flow statements of 125 oil and gas firms, Professor Porter argues that there is a current need for greater comparability and presents recommendations for improving that comparability, in particular, to require disclosures of cash Inflows from oil and gas sales and cash outflows for property acquisition, exploration, development, and production activities.

This article covers compliance and planning for oil and gas transactions considering current income and estate tax situations and then looks at new planning opportunities with recent changes in laws including our economic and political environment.

The authors summarize the SEC's rules for recognition of income by oil operators from transactions involving properties in which the operator has an interest. These rules, promulgated in 1984 in Financial Reporting Release No. 17, govern lease brokerage activities, management fees, and service income. The authors present four examples of drilling contracts in cases where the drilling contractor holds an interest in the property involved.

Mr. Hendrickson and Mr. Keller review the impact of income taxes on the SEC full cost ceiling test. They urge the SEC to amend its rules to eliminate income tax considerations from the ceiling test and thereby enhance the meaningfulness and comparability of financial statements.

The recent dramatic increase in US production of oil, condensate and NGLs has presented capacity challenges to the midstream segment of the industry. This paper discusses how oil and gas producers, midstream and downstream entities have responded and benefited from these challenges.

The FASB requires supplemental disclosure of net present value data for oil and gas companies--a departure from historical cost-based data. Earlier studies of the usefulness of these data have obtained mixed results. This study extends prior work and indicates that the required disclosures contain incremental information content.

In the U.S., the issue of reserve quantity and the value relevance of non-earnings performance metrics have been the focus of a great deal of attention for quite sometime. The authors examine the potential role of various non-financial performance indicators in predicting the future performance of 25 U.S. oil and gas companies over a time-period from 2002 through 2006. They further investigate whether these performance metrics have an incremental valuation implication for the capital market in pricing equity securities in the presence of other traditional earnings-based financial variables.

In the Revenue Reconciliation Act of 1990, Congress granted AMT relief for "exploratory" IDC's and "marginal production" preference depletion. The application of the new provisions is by no means elementary. Professors Mark, Boynton, and Robison offer proposed solutions to aid in planning and year-end calculations.

Mr. Potts gives a brief historical summary of the spot market. He explains the need for producers to establish gas marketing departments and how these departments can be profit centers. Mr. Potts stresses the necessity for producers to be involved in pipeline rate hearings before the FERC.

In volatile markets, it is important to develop the best possible forecast of prices so that profits can be protected. This paper compares the forecast accuracy of individual versus group forecasts for petroleum products. The results are important for companies who wish to optimize profits from refining/marketing activities. The study also has implications for companies who need to make forecasts for upstream activities as well.

The authors suggest that there is a genuine demand for the information provided for Reserve Recognition Accounting and that the arguments of the accounting profession and oil managers that RRA data are too subjective to be useful may be unfounded. These conclusions are based on an analysis of behavior of the price of stock of 51 companies at dates surrounding the 1978 RRA filings and earnings announcement dates (the first reports in which RRA data were required to be filed).

This article is a response to a recent article by Ken Pratt, "Accounting for the Value of Discovered Reserves of Oil and Gas: Responses to a UK Discussion Paper," (Petroleum Accounting and Financial Management Journal, Spring 1998). It reflects on how recent research helps answer some of the questions raised in Professor Pratt's paper.

This study adds insight into the impact of derivative reporting rules on the informativeness of disclosure requirements, decisions regarding the intent of derivative use, and contributes to the literature on hedging effectiveness.

The continuous flux of the upstream petroleum industry often frustrates the best efforts of management to track and assess performance. The authors advocate the use of a system of performance metrics called Integrated Performance Management (IPM) which combines a strategic scorecard with value chain analysis.

Use of the interest rate swap as a risk management tool has increased dramatically over the past few years. The result has been proposed accounting and reporting changes on derivative accounting for the oil and gas industry and an increase in market volatility.

The theory of capital is concerned with the allocation of resources over time. Firms and individuals, as economic agents, make decisions about additions to or reductions in the level of oil and gas reserves, and those decisions can affect both current and future well-being. This paper is an examination of how such decisions might be made in an optimal way. The author presents a general mathematical model of the accumulation process then applies the model of optimal allocation to the problem of the optimal use of oil and gas as nonrenewable natural energy sources.

May and O'Neill summarize the major reasons why oil and gas reserves may be inappropriately determined and explain how these problems affect the internal auditor. Then they present highlights of an internal audit program including a "Controls Questionnaire," an "Individual Property Review Sample Selection," a "Property Review Data Sheet", and "Reserve Audit Procedures."

Mr. Collemi discusses the world wide transition to IFRS, challenges and opportunities for enterprises, economic and cultural issues, current accounting disparities in the extractive industry, moving IASB forward, and the IASB discussion paper on extractive industries and latest developments.

Because most oil and gas companies have operations or interests of some kind in multiple countries, the industry is very concerned with the movement toward international harmonization of accounting standards. Many companies now must report to local governments for foreign operations using standards different than their home country standards. Companies should expect more changes as we grow closer to international convergence of financial reporting.

This article discusses domestic oil and gas companies that have accumulated leaseholds in shale plays and have structured joint venture (JV) transactions with a “carry” provision to fund a portion of their capital requirements.

This paper studies the value relevance of accounting measures in the international petroleum industry. In particular, they investigate how the value relevance is affected by accounting method choice and vertical integration.

Mr. Johnston examines the myriad variety of petroleum fiscal systems throughout the world, covering fiscal, concessionary, and royalty/tax systems; economic rent; negotiations; contracts and joint ventures. Following the article are a glossary of terms and a list of abbreviations and acronyms our readers may find helpful.

SFAS No. 143 requires that companies recognize liabilities for asset retirement obligations in the period in which the obligation is incurred if a reasonable estimate of fair value can be made and defames the term retirement as being the other-than-temporary removal of a long-lived asset from service via sale, abandonment, recycling, or disposal, but not the temporary idling of such asset. Numerous questions have arisen regarding the timing of recognition of the asset retirement obligation liability when the performance of the retirement activity is conditional on a future event. On June 17, 2004, the F ASB issued an exposure draft for a proposed interpretation of SFAS No. 143, "Accounting for Conditional Asset Retirement Obligations: An Interpretation of F ASB Statement No. 143."

Anecdotal evidence indicates that the Exxon Valdez accident raised public concern over petroleum shipping and increased regulatory activity. This study examines the Impact of that incident on the oil and gas industry.

The partnership has for many years been a favorite vehicle for conducting oil and gas drilling ventures. Promoters of partnerships have long accepted interests providing a share of future profits of the entity in exchange for their services. They have done so without current income taxation. That could change if proposed Treasury Regulations are finalized. Anyone participating in the organization of a partnership or involved in operations of an existing partnership should, therefore, take note of the proposed regulations.

This article provides an analysis of the costs and effects of utilizing conventional energy as a partial or complete replacement to supplant conventional energy sources to help determine what conditions would be necessary to make such changes and whether the cost would be worth it.

Many oil and gas companies have significant inventories of purchased and/or produced oil, gas, and derivative products. For financial accounting purposes, inventory cost may be determined by specific identification or by the association of the flow of cost factors—first-in, first-out (FIFO), last-in, first-out (LIFO), and average cost. This article addresses whether the use of the average cost method clearly reflects income for federal income tax purposes and illustrates the potential impact that using the average cost method rather than FIFO can have on taxable income during periods of rising prices.

Calculation of royalty due under an oil and gas lease depends first and foremost on the language in the lease, and courts in different states sometimes reach different conclusions even when faced with the same facts and the same lease language. Until the oil and gas industry elects to address the lack of specificity in royalty clauses, the uncertainties will continue, with the resultant costs of litigation inherent in these general royalty clauses, and with the sometimes radically different results reached by courts in different jurisdictions who are forced to make decisions without any lease language to guide them.

As energy costs have risen in recent years, so too have the number of issues that can ensnare eager but unsuspecting investors or plague companies attempting to honor agreements. In this article Mr. Matthews briefly explains oil and natural gas royalties, describes methods for identifying potential royalty calculation errors and identifies common pit falls.

Professor Fanara reviews the evidence for and against oil pipeline deregulation. He first raises the question of whether oil pipelines are natural monopolies. He then compares the results of three studies on pipeline market structure in the U.S.

Reserve estimation is a complex activity. There is risk that the imprecise nature of reserve estimates may distort financial reports. Familiarity with reserve estimation techniques should allow financial statement preparers and users to assess the risk of reserve estimation.

Many current oil and gas leases contain clauses obligating the operator to compensate the surface owner for losses such as crop damages, damages to land and structures, and diminished value. Surface owners are also commonly paid for easements and for the use of non-oil and gas resources from the property, such as water. This article discusses the federal income tax implications of such payments from the perspective of the payee surface owner, with an emphasis on payments to surface owners in connection with constructing well pads in the Barnett Shale Formation in North Texas.

Section 1031of the Internal Revenue Code provides many planning opportunities, particularly with respect to oil and gas and real estate ventures. These opportunities, however, are coupled with varying degrees of complexity, and there are many intricate requirements and traps for the unwary. Nevertheless, practitioners who are well versed in Section 1031 have many tax minimization opportunities to offer their clients.

In this article the authors review the history of the sale of joint cost allocation under the Natural Cas Act of 1938 and demonstrate different cost allocation schemes that have been used.

Mr. Yehle's article concentrates upon operational differences between accounting procedures for joint interests in the U.S. and the U.K. He examines differences in such areas as contracting, cash management administrative overheads, parent company overhead, and warehousing.

Mr. Robinson examines typical audit procedures employed in conducting the customary audit well expenditures in joint interest operations. His discussion includes preliminary procedures, field procedures, common causes of audit exceptions, the audit report, and audit settlements.

Mr. Norman first reviews the content of the typical joint operating agreement. Then he examines the Accounting Procedure accompanying the operating agreement, giving special attention to those provisions likely to have greatest impact on joint interest audits. The author then discusses preparation prior to the field work and suggests procedures to be followed in carrying out the field work. Reporting and follow-up are then briefly discussed.

The recently announced super giant Kashagan discovery in the Kazakhstan sector of the North Caspian Sea is the world's largest discovery in three decades. Kashagan and Tengiz are the two largest fields in Kazakhstan—their oil reserves alone rival the United States' 22 billion barrels of oil, yet they have hardly begun to produce. At 20 billion barrels (if that is ultimately the figure) Kashagan would be the fifth largest oil field in the world, and the only one outside the Arabian/Persian Gulf region.

An efficient, flexible, and appropriately crafted E&P contract benefits both host governments and the international oil companies with which they do business. Four key areas of concern highlight the alignment of interests between parties: division of profits, government guaranteed share of revenue, minimizing expenses, and maximizing efficiency rates.

The authors use bench marking data obtained from post-SFAS No. 69 oil company financial reports to evaluate three performance categories (financial, exploration strategy/success, and asset quality/operations) for major, independent, diversified, and pipeline oil firms.

The recent round of bidding for exploration rights in Venezuela reinforces the industry's confidence in the opportunities available in this country despite the stringent requirements of the new model production sharing agreement proposed by Petroleos de Venezuela, S.A., the state-owned oil holding company.

The projected merger of LASMO and Enterprise Oil resulted in potential damage to the credibility of the UK accounting profession and drew attention to the flexible accounting practices of the UK's oil and gas industry. Disputes arising out of the LASMO/Enterprise merger may force accounting regulators to set prescriptive mandatory accounting standards.

The paper provides a brief review of how LIFO affects financial statements, and the financial statement effects that would accompany a repeal of LIFO. The paper also reviews factors that could lead to the elimination of LIFO, and how the magnitude of LIFO reserves has fluctuated with oil prices over the past 10 years.

In 2000, the Internal Revenue Service adopted Revenue Procedure 2000-37 allowing taxpayers a method to effect “reverse exchanges” or parking arrangements for a maximum period of 180 days. Two years later, the Service published Revenue Procedure 2002-22, establishing ruling guidelines for tenant-in-common sponsors and allowing up to 35 investors to combine their capital as owners of undivided interests that would not be considered “partnership interest” for §1031(a)(2)(D). This began the explosive growth of the replacement property industry.

This the second part of a two-part series covering like-kind exchanges. This installment covers multiple asset exchange rules, personal property exchange rules, real property exchange rules, depreciation recapture, and depletion/IDC recapture, as well as addresses some of the pros and cons of various partnership issues and exchanges.

Oil company shareholders have access to more information than ever before. But is it enough, and is it the right kind of information? The efficiency of the marketplace is the issue, and there is a direct positive correlation between that and information quality, quantity, and velocity. Geophysical and petrophysical data gathering, processing, and interpretation technology have made huge advances in the past two decades. Furthermore, the investing public is more sophisticated and is ready for more, better, and faster information.

This paper examines whether the liquidity risk disclosed by management's going concern assessment in 10-K reports and the linguistic tone on liquidity in the Management, discussion, and Analysis (MD&A) section can predict bankruptcy for oil and gas firms.

Two 1991 decisions concerning limited partnerships established alternate grounds upon which to claim Section 165 loss deductions: abandonment or worthlessness. The authors analyze recent Tax Court decisions in Echols v. Comm. and B. Philip Citron which clarified alternate grounds for entitlement to a loss deduction of partnership interests.

Many oil and gas industry critics believe that a significant portion of Louisiana wetland loss is a direct or indirect result of petroleum operations. Mr. Berry argues that what we are witnessing is the long-term, natural, and ongoing geological process of building and destroying land in the lower Mississippi River Delta, accelerated by the construction of levees on the Mississippi.

Variance, a measure of deviation between the actual and the expected budgeted performance in a given period, is a useful tool for managerial planning and control. When dealing with large data sets and multiple report formats, computer-aided matrix manipulation can reduce the burden of time and complexity in variance analysis and can generate many managerially useful reports. This paper describes the use of a matrix manipulation model by a large international oil company in answering some of the questions it faces from top management.