Companies with significant oil and gas producing activities face a number of challenging disclosure requirements. This article describes each disclosure requirement, as well as some pitfalls to avoid and common issues raised by the SEC staff.

The inherent complexity of petroleum accounting stems mainly from significant uncertainties involved in exploration, development, and production activities. Historically, most controversies in petroleum accounting concerned determining which exploration and development costs should be capitalized. This article gives an overview of the development of petroleum accounting regulations and discusses some of the difficulties facing regulators in trying to develop a more meaningful accounting framework for oil and gas upstream activities.

Historically, oil and gas accounting literature has emphasized the expense side of joint interest operations, but little attention has been given to the Auditing of oil and gas revenues. Mr. Norman reviews certain audit procedures applicable to oil and condensate, to unprocessed natural gas, and to processed natural gas. This article covers volume determination and verification, production records, value determination, contractual records, and the examination of other documents and records.

Oil companies that do not understand and timely implement the complex identification, record-keeping, and clear reflection of income regulations are in for an unpleasant surprise when the IRS examines their hedging activities.

The 1986 Tax Act made extensive changes to the rules for deducting "passive" losses. Many of these changes have adversely affected the oil and gas industry. Professors Mayne and Putnam present information on the exception provided in the 1986 Tax Act for working interests in oil and gas properties.

The Valdez oil spill raised a number of questions about the extent to which consideration of the cost of these events is included in management evaluation of oil projects. This discussion outlines the types of disaster-related costs which may need to be included in future project evaluations.

The New York Mercantile Exchange provides a wide variety of instruments for managing cash flows from crude oil and related products. This article, extracted from a speech by Rosemary McFadden, President of the New York Mercantile Exchange, surveys the alternate financial instruments available on the NYMEX and the way those instruments may be used to protect producers and others against price fluctuations for crude oil and related commodities.

When the fall in oil prices first took hold in late 2014, Moody's Investors Service focused its attention predominantly on the credit ratings of smaller and lower-rated exploration and production (E&P), oilfield services (OFS) and drilling companies. This article discusses the rationale for the current commodity price estimates, summarizes the rating actions taken so far in 2016 and recalibrates credit ratings to reflect this challenging industry environment.

The recent decline in the fortunes of the oil and gas industry have had a severe adverse economic impact on regions which depend on this industry. Professor Brendler conducted an economic analysis of different regions in Louisiana to measure the effect of the price decline on different segments of that state's economy. His analysis finds that the adverse events not only affected the aggregate income in a region, but resulted in significant changes in the distribution of income across different classes. In effect, the middle income class was most severely affected by the oil price decline.

Mr. Boyle classifies oil taxes as entry taxes, event taxes, and exit taxes. He then analyzes the various oil taxes in the United Kingdom, the Netherlands, Denmark, and Norway. He then ranks the countries in the order in which exploration risk is most reduced by taxes.

In this article Ms. Kingery discusses some of the procedures, reports, and forms that are used by oil purchasers to measure and report oil and gas production. These include state regulatory agency reports, tables used to measure oil at standard gravity and temperature, and division orders.

The authors briefly review the literature on the performance of the Organization of the Oil Exporting Companies (OPEC) in its attempts to stabilize oil prices. It also considers how the high price of oil has enabled certain non-OPEC countries to become major players as oil and gas producers and what the potential implications are for accounting standard regulators given the risks attached to identifying viable reserves of oil and gas.

The Securities and Exchange Commission (SEC) has recently issued an interpretive release on various required disclosures for Management Discussion and Analysis of Financial Condition and Results of Operations (MDA). Over 96% of the reviewed companies received comment letters indicating problems in MDA disclosures. The extractive industries were nor specifically mentioned. In this article, 30 energy companies are reviewed. Two particular MDA problems were common: inadequate analytical framework in the results of operations section and no analytical framework in the liquidity and capital resources section. The article offers operational guidelines to correct these problems.

This article explores the changing roles, responsibilities, and business processes in the gas industry as presented in the COPAS Operator/Producer Roles & Responsibilities (OPRR) task force white paper and predicts what future changes could be made to improve efficiency.

New regulations under IRC Section 7701 now allow many businesses to elect either corporate or partnership tax treatment. This organizational form decision must take into account tax factors, nontax factors, and the impact of the projected firm life cycle on tax and nontax factors.

Prospects for a relatively stable political environment for the next several years, coupled with privatization and strong economic trends, could attract some much needed investment as the transformation of Russia's political, social, and economic systems proceeds. Central Asia continues to offer tempting tax incentives for foreign investors.

Mr. Bowlin, president of ARCO, presents his views on the outlook for global oil exploration and development. In addition to a forecast of the trends for oil prices world-wide, he also assesses both geologic prospects and political factors of various regions of the world that in his opinion offer the best possibilities for increased exploration and development activity.

In this exploratory study, the authors examine the compensation structure of boards within the oil and gas industry, and the relationship between the components of external director compensation and firm and board characteristics within the oil and gas industry.

In April 2010, the International Accounting Standards Board (IASB) Extractive Activities project team released its Extractive Activities Discussion Paper. The aim of the discussion paper is to solicit input regarding recognition, measurement, disclosure, and other accounting issues unique to the extractive industries. This article provides a summary and overview of some of the key issues.

Mr. Cain analyzes the major differences between the Council of Petroleum Accountants Societies' 1984 Onshore Accounting Procedure and the 1974 Accounting Procedure. The corresponding paragraphs of each form are shown where a paragraph has been changed and the differences in wording are pointed out.

Thoughts and insights regarding the legacy of oil.

In the case of Hull vs. Sun, the Oklahoma Supreme Court ruled that royalty owners did not have to sign a division order to be entitled to payment of production proceeds or interest accrued on funds suspended by the purchaser while awaiting the return of an executed division order. This vindication has spurred various owners' organizations to press for reforms in the method of payment to royalty owners.

In 1984 the U.S. Supreme Court in Commissioner v. Engle, et ux, ruled against the Internal Revenue Service and held that percentage depletion maybe claimed on gross income from a property in a year in which no actual production occurs. Ms. Case and Mr. Rogers highlight the history of percentage depletion on lease bonuses and advance royalties and offer practical guidelines for implementing the Engle decision.

This paper provides a comprehensive case involving a U.S. company that enters into an international production sharing contract (PSC). The contract terms include common elements found in production sharing contracts worldwide.

The Polish oil industry is one of the most dynamically growing sectors of the economy and is expected to be fully privatized by the end of 2001. Although there are no separate legal accounting or taxation rules for the oil industry in Poland, since 1991 the trend has been to reshape accounting regulations to better serve free-market-oriented enterprises.

Mr. Condit reports on the Petroleum Check Stub Data Exchange System developed by a committee of the Council of Petroleum Accountants Societies, of which he was Chair. Major features of the System are described in the article.

This article examines the typical fiscal regimes currently in force within ASEAN. Mr. Khin is director of Afka Co. Pte. Ltd., a consulting firm in Singapore, and past chairman of the national oil company of Myanmar (Burma). Mr. Liang is the features editor for PetroMin magazine in Singapore.

In this article the authors explain the nature of futures contracts and how they are used for hedging and speculation. Petroleum accountants and managers will be especially interested in hedging transactions. The accounting and tax implications are then discussed.

Mr., Svennevik describes oil and gas accounting and reporting practices in Norway, placing special emphasis on the importance that income tax requirements have had. He then surveys principles of accounting for geological and geophysical costs, exploratory well costs, offshore facilities and development costs, financing costs, foreign currency translations, and crude oil inventories. Finally, he compares U.S. and Norwegian accounting practices.

The stock market is known to react to news of importance to an industry. Sometimes it is difficult for individuals to select from among varieties of information that which is of significance to investors. Professor Glascock reviewed two events believed important to the industry (the Penn Square bank failure and the collapse of the 1982 Vienna OPEC meeting) to see if investors did, in fact, react to these events. Interestingly, the Penn Square failure had no discernable effect on prices. However, as the results show, OPEC's activities do affect oil company security prices.

Since opening its doors to foreign investment in the late 1970's, the People's Republic of China has encouraged foreign participation in its petroleum industry. To deal with onshore and offshore projects, the PRC has drafted two model production sharing contracts which form the basis for bilateral negotiations. Mr. Kinney is an attorney specializing in international joint ventures; he is with the energy group at Clyde & Co., Hong Kong.

Because reserve estimates are of great Importance in oil and gas financial reporting, accountants should have a basic understanding of the procedures used in reserve estimation and of the inherent subjectivity of those estimates. Mr. Bell, who is both a petroleum engineer and a CPA, reviews the nature of petroleum reservoirs and methods for analyzing petroleum reserves in terms easily understood by accountants.

This article addresses how petroleum reserve estimates are prepared, why there are revisions in reserve estimates, the definitions of reserves and how these reserve estimates impact the financial statements.

The program for the phased decontrol of oil prices was adopted by Congress with several objectives. Among these were to enhance domestic production and to promote energy independence. Now that this phase of the industry is past, it is useful to review the extent to which the program achieved its objectives. This article provides such a review and analysis.

In this article Messrs. Wilson and Sparger give an overview of federal well-head price controls and examine the phased decontrol provisions of the Natural Gas Policy Act of 1978. The situation that will exist in gas price regulation on January 1, 1985, is then examined.

Mr. Reed shares his experience in class actions and mass actions which arise directly from the oil patch. This article addresses some practical aspects of the use of class actions in oil and gas royalty cases from the plaintiff's perspective, highlights some state and federal cases, and references some helpful sources. See the following article.

This article explores the repercussions of the Tax Reform Act of 1986 and focuses on the issue of how corporations need to modify their processes for evaluating capital investments in light of the two parallel tax systems created by the TRA.

As Director of Oil Policy and Director of the Office of Energy Tax Policy within both the Reagan and Bush Administrations, Mr. Goodman possesses a unique insight into the dilemma facing the Clinton Administration of simultaneously growing the U.S. economy and ensuring a healthy domestic petroleum industry. His recommendations include initiatives regarding a new investment incentive, broad-based energy or environmental taxes to promote oil price stability, and aggressive government action to level the playing field between natural gas and coal.

This article draws on and updates the discussion of tax policy issues and potential tax reform in the 114th Congress and discusses some of the political barriers facing tax reform.

In 1993, the Internal Revenue Service and the Department of the Treasury took major steps in breaking away from the prevailing Arkansas Best tax environment toward one more conducive to hedging activity. This article updates the reader on significant tax law changes affecting not only tax liability but also derivative strategy issues.

This first part of a two-part study of post-production deduction in the determination of royalties concerns the three states that determine these deductions "at the well"—Texas, Louisiana, and Mississippi. Part Two will appear in the Spring 2004 issue of the Petroleum Accounting and Financial Management Journal and will deal with the "marketable product" states of Oklahoma, Arkansas, Colorado, and Wyoming, and the role of the Minerals Management Service in interpreting ambiguity in royalty contracts.

Two approaches to determining post-production deductions from royalties can be seen in the "at the well" states (Texas, Louisiana, and Mississippi) and the "marketable product" states (Oklahoma, Arkansas, Wyoming, and Colorado). The first installment of this article dealt with the "at the well" states. This second installment addresses the "marketable product" states' approach to post-production deductions from royalties.

In order to illustrate how post-project audits of individual project oil and gas accounts can be a potent management tool, the authors analyze an actual, typical successful oil and gas project from the investment to acquire exploration rights to abandonment. Mr. Lohrenz is an associate professor in the Department of Petroleum Engineering and Geo-sciences at Louisiana Tech University and a frequent consultant in the oil and gas industry. Mr. Posey is a professor in the School of Professional Accountancy at LTU.

In June 1997, the FASB issued the first proposed concepts statement in 12 years: Using Cash Flow Information in Accounting Measurements. This could be an indication that the Board is now ready to consider nontraditional measurement methods, specifically the concept of expected cash flows. This article focuses on how this proposed concept would affect the oil and gas industry.

This article examines the potential for litigation involving producers, royalty owners and a variety of natural gas and natural gas liquids (NGLs) midstream players has arisen due to unanticipated industry success on some fronts to changes in historical price relationships and to fluctuations in aggregate supply and demand for oil.

Estimated reserves quantities are never 100 percent accurate but are assumed to be reasonably reliable when labeled “proved reserves.” Users of reserves information should be advised, however, that it is a flawed assumption to consider that the proved reserves category constitutes both proof and complete reliability. Proved reserves estimates are no more reliable than that afforded by the quality of the underlying data; the experience, ability, and integrity of the evaluator; and the level of compliance with the relevant reserves definitions and reporting requirements.

This article discusses how oil demand and production affects economics, some of the historical prediction patterns, estimating oil demand using linear regression and logarithm transformation.

Mr. Dole suggests that in preparing a financing proposal. an oil and gas company should start with assessing its own strengths and weaknesses and develop a business plan based on this assessment. Various potential financing sources are discussed and from this list the company selects the source that best suits its needs and develops a strategy for approaching that source. The proposal document is then discussed in some detail.

2004 was a momentous year for the oil and gas industry globally. Strong oil demand growth, coupled with the tightest oil supplies in over 25 years, caused oil prices to surge upwards. Several major producers have issued downward revisions of their oil and gas reserves. The authors explore whether existing oil and gas reserves disclosure requirements really meet investor and consumer needs and make several suggestions for improvements to enhance the usefulness of reserves disclosures and to restore user confidence in this critical aspect of reporting by oil and gas companies.

In the final article on theft, control. and fraud. Mr. Turner reviews the potential for white collar crime found in the oil and gas industry. He then discusses specific steps that may be taken to prevent fraud, including competitive bidding procedures, adequate supervision of high exposure areas, comprehensive internal and vendor audit programs, and statements on conflicts of interest and illegal and unethical practices.