Rapid political change has misled western businesses to assume that their counterparts in the post-Soviet Republics (PSRs) are eager to embrace western social and business ideas. This paper analyzes some of the local business realities confronting western investments in the PSRs. Mr. Darnell is a CPA and heads Business Advisory Services in Houston.

Audit fees are a significant cost for publicly held companies. Several studies have looked at the factors that cause fees to rise or fall for companies in general. Simon applies these techniques to the oil and gas industry to see what factors are associated with higher (lower) audit fees. The results can help management's efforts to optimize audit costs.

Using a sample from the 1993-2007 period, the authors provide evidence consistent with a market premium for firms that report a positive reserve quantity revision.

To market natural gas, some producers sell all or substantially all of their production to specialized gas marketing affiliates. The corporate relationship between the producer and the marketing affiliate can complicate the determination of what the proper royalty to the lessor should be. Also complicating the determination of royalty valuation can be the differences between MMS regulations and the case law of the individual state. How far the state will go in piercing the corporate veil that shrouds the producer-marketing affiliate relationship can have a major impact on royalty determinations as illustrated in this article's state-by-state analysis of recent court decisions.

Acquisitions are important to an MLP's long-term prosperity, therefore current market conditions may be changing the rules of the game. MLP valuations are sharply depressed and capital markets are extremely volatile, with credit markets being difficult to access. As such, MLPs, like all market participants, may experience trouble financing acquisitions and capital development projects. MLPs may need to either look for new ways to finance their external capital requirements or temporarily reduce spending.

Messrs. Morris and Younkins review some of the social problems--such as employee safety and health, pollution, and mine land reclamation--in the coal industry. They then discuss the need for developing accounting measurement of social performance in the industry. They outline a model for developing social interactions at various levels in a mining company and discuss the problems facing the social accountant in coping with data relating to the company's social role.

The volume of mergers and acquisitions (M&A) activity has been increasing since 2004 and is now reaching record levels. The reasons for the record volume of global deal-making are various. Good economic growth in Asia, Europe, and North America coupled with record growth in China and India is certainly a factor. Relatively low interest rates, a low corporate default rate, strong stock market volumes, and record highs in money markets (U.S. and Asia) also played a part during this period.

The authors have studied a total of 86 corporate mergers, of which twelve were in the extractive industries, to test synergism (whether the mergers resulted in a value for the merged firm that was in excess of the sum of the values of the two firms prior to merger). They conclude that for the 86-firm sample, there was evidence of synergy, but that there was little synergism in the case of mergers in the extractive industries.

Comparing fiscal systems in order to assess the most favorable countries in which to invest is a complex task. Reliance on a single indicator can often be misleading; a better approach is to compare the prospectively of a country with the fiscal regime in place. Active in the field of international economics for over twenty years and the creator of GIANT, Petro consultants' international economics software system, Mr. Smith is currently vice president of Petro consultants, Houston.

On December 20, 2013, Mexican president, Enrique Peña Nieto, signed into law various constitutional reforms related to Mexico's energy sector. The article provides background and summary of Mexico's Energy Reform, discusses the opportunities for foreign investors in Mexico's energy sector, outlines the major challenges for foreign investors considering investing in Mexico's energy sector, and provides a summary and conclusion.

In a boon to taxpayers, a recent decision by the Ninth Circuit Court of Appeals reversed the position previously held by the IRS and the Tax Court as to the requirements for minimum annual royalty payments by upholding the right to exercise the at-will-termination clause. However, the same court refused to discuss the contingent payment issue involving non recourse loans. The authors analyze the ramifications of the Cheng v. Comm. decision from the perspective of the lessee and the lessor.

As master limited partnerships (MLPs) continue to grow in popularity, many energy companies are considering the MLP structure for a variety of reasons. This paper discusses strategic reasons for an MLP, planning for the long-term, implementation resources and timing and execution.

This article discusses the environmental effects, imagined or real, of fracking, and mineral owners, their land, rights, obligations and consequence under the laws, rules and practices of the industry.

When oil prices rose in the wake of the 1973 oil embargo it was immediately obvious that there were problems with conventional accounting practices. A number of methods were considered to find a way to adequately represent the actual “value” of oil and gas assets on the balance sheet. In 1978, the FASB issued FASB No. 19 with the intention of replacing the full cost (FC) and successful efforts (SE) accounting methods, with reserve recognition accounting (RRA).

Discusses the 2009 SEC modernization of oil and gas reporting and the value-relevance of the shift from spot to average price requirements.

The "savings index" is a measure of how much a company gets to keep for every dollar it saves. Keeping costs down benefits both the government and the international oil company (IOC) in a production sharing contract (PSC). Most fiscal systems are well designed in this regard: there is a clear alignment of interests.

This paper examines issues relevant to the oil and gas industry as the country moves toward the use of international standards for reporting purposes.

As a result of thin margins and more aggressive enforcement, multistate state tax planning will play a significant role in the post-Order 636 natural gas industry. This article analyzes what FERC Order 636 has meant for the three most affected segments: the pipelines, the gas marketers, and the storage companies.

This article provides an historical overview of the perspective of the national oil companies, the scope of their role in the energy industry, the justification and/or need for continued expansion by many of them, and the impact of these activities on their internal commercial activities in the countries where they decide to invest.

Changes in the structure of the natural gas industry, including changing regulations, price instability and increasing competition are viewed with particular concern in an industry which traditionally has depended on steady income streams to support dividend payments. This article surveys the managers of natural gas companies about their views on the importance of maintaining dividend levels for shareholders as well as the perception of managers about shareholders' preferences for stable dividend policies.

The production of natural gas involves gathering the gas by a pipeline or sending it directly to a transmission line for delivery to the consumer or to a gas plant for processing. This article examines some of the processes and variables that can impact natural gas liquid allocations and reviews an example of the computations performed to calculate a given well's heating value and hydrocarbon liquid content. The author performs a hypothetical plant allocation for two example wells, values the resulting products, compares the financial results of the allocations, and discusses the reporting that may be made to the various owners of the wells.

A simple rule of thumb should resolve any royalty issue: if the royalty relies upon the performance results of the producer, there will be a covenant implied. If the royalty does not rely upon the performance results of the producer and expressly states the standard for royalty payment, the court should not imply a covenant. The parties to a lease need to understand that "fairness" has nothing to do with the agreement of the parties. The moral of the story concerning royalty rights in an oil and gas lease is to pay closer attention to drafting the agreement and setting forth the intentions of the parties in such a way as to resolve any doubt.

Mr. lhloff, an attorney, reviews the litigation surrounding lease provisions that provide royalties are to be based on "market value" of gas produced. He reviews many court cases that have resulted from situations in which the actual sales price of gas has not been the same as "market price."

In his article Mr. Luke discusses managerial decisions involving a company's acquisition of oil and gas properties from other operators. Such factors as why producing properties are acquired, factors to be considered in planning for an acquisition, criteria to consider in selecting properties, methods used to compute value of reserves, and acquiring an entire company are considered.

The primary concern in negotiating production sharing contracts is to protect the progression from exploration to development to production rights and vested property rights in the event of a discovery. This paper addresses special concerns that deal with those rights. Mr. Dur is chief negotiator for Triton Energy in Dallas; he has played an integral role in the acquisition of rights and the formation of Triton's worldwide ventures, including Colombia and the Malaysia-Thailand joint development area.

Mr. Wehner explains what "net back" pricing agreements are and how prices of crude oil are determined under such agreements. He concludes that net backs are unlikely to become a controlling factor in determining oil prices.

Messrs. Jensen and Hall review the recently approved AICPA Audit Guide for Oil and Gas Producers. They discuss and describe the five chapters of the audit guide: - Overview of the Oil and Gas Industry, - Business Activities in the Oil and Gas Producing Industry, - Tax Considerations, - Internal Control Considerations, - Auditing

In 2006, the Texas Legislature passed House Bill 3, which substantially revises the existing franchise tax by expanding the types of businesses that are subject to the tax, expanding the tax base, and eliminating a number of credit provisions previously included in Chapter 171 of the Texas Tax Code. Notably, HB 3 subjects partnerships to the new Texas franchise tax (a.k.a., the “margin tax”), exempts “passive” entities, and introduces combined reporting for certain affiliated entities. The 2007 Texas Legislature recently passed a technical corrections bill, HB 3928, making a number of revisions to the new margin tax. Part Two of this article will appear in the fall/winter issue of the Journal.

Interesting recent developments in exploration licensing provide a glimpse into the psyche and state of the industry. Throughout most of the 1980s and 1990s world oil prices ranged between $16.00/BBL to $20.00/BBL with an average of just over $18.00/BBL. Today prices are higher, and the industry appears to believe higher oil prices are here to stay. Recent license rounds in Libya support this view.

FERC Order 636 created a more favorable environment for gas marketing affiliates. Today's gas market features expanded business opportunities—marketing hubs, storage facilities, and marketing services—which have brought new players into the gas market.

An overview of the current gas supply situation suggests that oversupply is likely to continue into the 1985-86 heating season. Mr. Ihloff reviews the problems that have arisen under take-or-pay contracts because of the oversupply, exacerbated by FERC's United rate design. The author discusses the responses of regulatory bodies to the problems and the effects of these responses on producers, pipelines and distributors.

New partnership rules, generally will be subject to entity-level assessment and collection of tax resulting from an IRS audit, unless that partnership affirmatively elects different treatment for the tax year at issue.

Mr. Hensen discusses how the new S Corporation rules makes the S Corporation more akin to a partnership. He examines the initial "at risk" amount and the initial limitation on deductible losses under Sec. 1366(d)(l). The factors that decrease or increase the at-risk amount and the stockholder's stock basis and the basis of loans to the corporation are discussed. The carryover of disallowed losses is explained. Finally, the significance of corporate versus shareholder borrowing is reviewed.

Mr. Mark analyzes some of the changes in the Subchapter S Revision Act of 1982 and their impact on the economic interest and the depletable property concepts for oil companies operating as S Corporations. The problem of allocation of the basis of ]eases is examined in some detail. The potential problems arising from prorate allocations on a daily basis are then discussed.

In May 1984, the SEC amended its rules for profit recognition by full cost entities. Mr. Ridenour examines the application of these rules as they apply to gains and losses on sales and other conveyances of properties, management fees and other promotional fees, and service contracts.

The 79th Legislature of the State of Texas completely revamped the business tax structure for Texas. Effective for returns due on or after January 1, 2008, the tax will be based upon a gross margin calculated by reporting revenues, less either cost of goods sold (COGS) or compensation. A review of the statutes indicates that the new margin tax is significantly more complicated than the current franchise tax and, consequently, will require more preparation time.

This article provides and exhaustive overview of research on the usefulness to financial statement users of the reserve quantity and reserve value disclosures required under SFAS No.69.

Mr. Bell describes various contracts by which oil companies acquire exploration and production rights from host governments. These include production sharing contracts, joint ventures, full risk service contracts and normal service contracts.

A central assumption underlying the Auditing of corporate financial statements is that auditors are independent of their clients, both in fact and in appearance. The Securities and Exchange Commission (SEC) recently revised its auditor independence requirements. A particular focus of the new rules is the provision of non-audit services by financial statement auditors which the SEC feels has the potential to adversely affect independence and thus compromise the audit of the financial statements.

The Crude Oil Windfall Profit Tax Act of 1980 included a tax credit for the production of alternative, or non-conventional, fuels designed to encourage the domestic development of alternative energy supplies. This article examines how one oil company has been able to utilize the tax benefits of the credit in the production of non-conventional fuels.

In the summer and fall of 1992, the authors of this article surveyed 383 domestic and international gas companies to determine the extent of price hedging in the natural gas industry. The purpose of their investigation was twofold: to develop a profile of firms that hedge with NYMEX natural gas futures and to gauge corporate receptiveness to NYMEX natural gas options prior to their introduction in October 1991.This article presents the result of their survey.

Mr. Willis explains what an on-line accounting system is, its benefits in specific common oil and gas accounting systems, and some of the pitfalls related to an on-line system. He then discusses the alternatives available for small and mid-size producers interested in acquiring software packages.

This study provides empirical evidence on reported write-downs associated with asset impairment by oil and gas firms during the sample period 1995-2001. While FC firms have been required to test for asset impairment and recognize write-downs since 1978, SE firms were not formally required to do so until 1995 when SF AS 121 became effective. The evidence suggests that the impairment rules do eliminate the perceived varying degree of accounting conservatism (or aggressiveness) inherent in the choice of accounting method by oil and gas firms.

Professor King reports on the first stage of an ongoing project to evaluate disclosure requirements of the FASB and the SEC, especially reserve quantity and value disclosures. He concludes that quantity disclosures are relevant and should be required, that the RRA earnings summary is not meaningful, that reconciliation of net present values provides little information not contained elsewhere and should be discontinued, but that an exit value based on future net revenues from oil and gas is meaningful. Professor King presents "common-sized" RRA statements for 128 companies.

Presumably supplemental disclosures required of oil and gas producing companies are intended, at least in part to provide information that will permit users to adjust for the lack of uniformity resulting from the use of both the full cost and successful efforts methods of accounting and to enhance comparability among companies. In this article Professor Huang examines supplemental disclosures by successful efforts companies and develops expense prediction models to arrive at estimates of what full cost firms' incomes would have been under the successful efforts method. Huang concludes the disclosure requirements are sufficient to allow an indirect transformation, through regression analysis, from one accounting method to another.

Dr. Avard reports on his continuing research into the use of accounting disclosures by oil and gas financial analysts. He concludes that analysts perceive the disclosures of reserve quantity and standardized measure required by FASB Statement No. 19 to be useful, although they showed little interest in the schedules of costs incurred and of capitalized cost.

The authors use financial statement and SFAS 69 data to provide benchmarks in the areas of financial performance, exploration strategy/success, and asset quality/operations. The survey includes the entire spectrum of companies in the oil and gas industry: independents, majors, pipeline/utility companies, and diversified.

Mr. Harms and Mr. Gutierrez explain why publicly traded limited partnerships have become so popular and important in the last two years. The advantages and disadvantages are described. The authors then explain how an MLP is formed and examine the tax considerations and accounting considerations involved in MLPs. Finally, the authors discuss the administrative aspects of MLPs.

This article gives an update on natural gas and oil midstream investment, capacity and forecasted production.

This article examines the unique rules established for partnerships which own oil and gas properties.