This article presents a broad discussion of risk management as a process and the steps that should be taken, on a continuous basis, to effectively manage risk.

Firms experience adverse consequences when oil and gas prices fall. The extent of these adverse consequences can be important for evaluating future cash flows for investors and creditors. Although the revenue impact of falling prices is understood, the effect of changing prices on production costs is not. This paper demonstrates that the income effect of falling oil prices is somewhat offset by declines in production costs. This observation may have implications for accounting disclosures.

How should Company A account for the receipt of the $100 million from Company B? How should Company B account for the $100 million advance to Company A?

Messrs. Deakin and Limberg examine the question of whether revenue should be recognized at the time of production or only when a sale has taken place, a question that has been the central issue in a large number of legal cases in recent years. The authors then discuss the implications of revenue recognition in such policy issues as state income taxes, the windfall profit tax, and crude oil exchanges.

Mr. Bell discusses the objectives of project financing the types of risk in projects, the different types of project financing, and the effects of project financing compared to balance sheet financing. Mr. Bell then gives examples of project financing in the oil and gas industry.

Faced with uncertain economic conditions which could result in either a substantial oversupply of oil (or a sudden shortfall), many owners of producing properties see this as the right time to sell. Against that economic backdrop, a brief discussion of tax rules related to the sale of mineral interests merits consideration. This article explores those rules, focusing specifically on the proper reporting of taxable income between the effective date and the closing date of a sale transaction.

Recently the proper treatment of interest costs in computing the net income limitation for purposes of the windfall profit tax has led to controversy between the IRS and taxpayers. Dr. Crumbley discusses the general process for allocating overhead (including interest expense). He analyzes the tracing concept, discusses the fungibility of interest, and examines the question of netting interest expense and interest income.

An overview of the AICPA Audit and Accounting Guide that was finalized at the end of last year.

Ms. Lilly reports on a research project in which bank loan officers. chartered financial analysts, and certified management accountants evaluated the usefulness Of 15 types of disclosures required of oil and gas producing companies. All three groups ranked estimated quantities of proved developed reserves as the most useful disclosure.

This paper discusses the historical context of the newly proposed I.R.C. Section 761 regulations and their expected impact on gas balancing agreements. Also highlighted are competing theories of income attribution and gas balancing methods. The author concludes that the proposed regulations do impose an additional burden on taxpayers subject to GBA's, though the effect is not as severe as earlier anticipated.

Disclosure of a firm's proved and probable oil reserves is a key performance indicator in the oil and gas industry. The Canadian oil and gas industry—which requires the disclosure of probable reserves—is receiving heightened interest in the US as the best alternative to Middle East oil. If proved and probable reserves have a significant influence on share prices, then inappropriate estimation of these natural resources by incumbent managers or a lack of adequate accounting regulation can cause losses to uninformed investors.

In recent years, there has been a strong growth in fees for non-audit services relative to audit services in the fee structure for external auditors. The dramatic increase in the proportion of non-audit service revenues has raised concern about the loss of auditor independence resulting from the greater economic reliance of external auditors on their clients. This article examines the relationship between audit and non-audit fees for oil and gas firms.

This article describes some of the legislative history and gives a primer on a number of the IRS's rulings for qualifying natural resources income of publicly traded partnerships under I.R.C. § 7704(d)(1)(E). Because the IRS relies heavily on non-standard definitions in the legislative history of this provision, care must be exercised in interpreting rules for qualifying natural resources income of publicly traded partnerships under this section.

Section 7704 of the IRC, introduced by the Omnibus Budget Reconciliation Act of 1987, requires that most publicly traded partnerships be recharacterized as corporations for federal tax purposes. This article reviews the history of these partnerships and analyzes the impact of Section 7704 on these entities.

Research and development (R&D) spending generates considerable economic activity among all businesses, including oil and gas companies. This article­­­­­­ reviews R&D spending in the energy industry, R&D activity that qualifies for credits, methods to determine R&D credits, state R&D credits and steps to capture R&D tax benefits.

This article discusses the threat of ransomware and what can be done to address the risks.

Professor Etebari studied the prices of stock of 10 oil companies (5 of which received oil from the Middle East and 5 of which did not receive oil from this source) during the period around September 22, 1980, when Iraq invaded Iran. He concludes that the war increased the "returns" on stock of companies that received no oil from the Middle East, but had minimal effect on returns on stocks of companies that received oil from the Middle East.

This paper addresses the issue of global warming and related questions, the reality of energy in America, and recommendations of strategy for the future.

Mr. Ratliff reviews the general provisions of I.K.C. Sec. 1254. requiring the recognition of ordinary income to the extent of the amount of "adjusted intangible drilling and development costs" in certain situations. He then discusses the taxable dispositions of a divided interest, the nontaxable disposition of a divided interest, the taxable or nontaxable disposition of an undivided interest, a mixed disposition of an interest, and the disposition of a non-operating portion of a property.

The 1986 Tax Reform Act made two major changes in IRC Sec. 1254, relating to "recapture" on disposition of a developed oil or gas property. First, all IDC deducted on a property placed in service after 1986 will be subject to recapture when a property is disposed of. Second depletion which reduced the basis of the property is also subject to recapture. The author discusses these two new rules, along with Technical Advice Memorandum 8622005, which relates to recapture of IDC on the carve-out of an overriding royalty interest.

Many of the cases in this review of judicial and legislative decisions impacting the oil industry involve the aftermath of federal price regulations on natural gas during the 1970s and 1980s. Other prominent issues addressed in the past year include the discovery rule, class action certifications, and what costs can be deducted from royalty payments.

Neither the courts nor the legislatures can agree on a precise definition of division orders. The author discusses the various types of division orders, their legal effect, and the varying legislative responses in oil-producing states.

In this article Mr. Ihloff discusses certain recent developments in state laws governing disputes over title to royalties, delayed royalty payments, payments for damages resulting from drilling, and abandoned mineral interests.

This article discusses the tax provisions in President Obama's 2012 budget that would eliminate oil and gas incentives, as well as coal incentives. In addition, the President's proposals to reinstate Superfund taxes, increase the financing rate for the Oil Spill Liability Trust Fund, repeal of the last-in, first-out (LIFO) inventory method, and Senate Bill 940, also known as the “Close Big Oil Tax Loopholes Act” are discussed.

The authors review recent tax developments at the state and local level. A major development is the Finnigan decision, involving unitary taxation in the State of California. In addition, pertinent tax developments in Texas, Louisiana, and Oklahoma are reviewed.

US GAAP recognizes the option pricing approach; however, its use is not widespread. This may be because it is not a well understood method for valuing assets and because the mathematics look fundable. This paper describes the option pricing approach, compares it to the discounted cash flow approach, and assesses the significant differential impact of the two methods on a company's financial reports.

This paper reviews the current state of the development of an international accounting standard for the oil and gas industry and the working draft discussion paper (WDDP) issued by the International Accounting Standards Board (ISAB) in 2009.

In this article Dr. Trebing considers the structural and institutional changes in the gas industry and the strategies of regulated firms in the fact of diminished market growth, rising costs, and increased uncertainty. He then re-views the adequacy of regulatory responses and examines the major options for future public policy.

Because the form and content of a company report published in the UK is to a large extent determined by statutory rules, it is important to Understand the factors which influence the setting of those rules. This article considers the factors which have influenced the establishment of the accounting rules which govern the UK oil and gas industry.

To mitigate the perceived inadequacies of historical cost information for oil and gas firms, both the FASB and the SEC require supplemental reserve disclosures, including both reserve-quantity and reserve-value measures as well as disclosure of their major components. This paper expands on previous work by further examining the information content of the proven reserve measure and its components, specifically the relative information content of the aggregate measure of proven reserves versus its components.

As the International Accounting Standards Committee (IASC) launches a project which will ultimately lead to an international accounting standard for the extractive industries, reserve quantity and value disclosures are of critical importance. This article is a synthesis of a report which has been submitted to the IASC and which will provide the basis for their deliberations.

Should the cost incurred to drill the relief wells and other costs necessary to bring the well under control be treated as operating expense or as capitalized costs, assuming that the Company uses the successful-efforts method of accounting? Would the answer differ if the company uses the full-cost method of accounting?

Although the Crude Oil Windfall Profit Tax of 1980 is not generating any revenues current for the government, the tax is still on the books and reports must be filed. Messrs. Byrden, Schwarz and Grove analyze the crude oil prices that must be realized between now and 1991 for the tax to generate revenues for the government. They conclude that given the low probability of attaining these prices, the tax should be repealed.

This article addresses producer contractual and economic considerations and SEC rules and regulations pertaining to the definition of oil and gas reserves and reportable quantities of natural gas liquids reserves.

Privately-held oil and gas companies are affected by SEC accounting requirements even though those companies Lire not under direct jurisdiction of the SEC. Many private companies using full costing have used the lease-brokerage concept and excluded certain leases from the amortization pool. Mr. Acker discusses the accounting problems arising for those companies that decide to change their accounting policies to confirm to the SEC`s new rules prohibiting such exclusions.

A May 1999 survey conducted by the API and the NGI indicates that the oil and gas industry is well on its way to being Y2K compliant, but other surveys by the GAO and others are not so optimistic. This disagreement has led the authors to investigate the current disclosure requirements, the types of disclosures oil and gas companies are making in their 10-Ks, and the impact of the disclosures on financial statement users.

Financial accounting rules provide that events which may have a material effect on the financial statements of a company should be disclosed if they become evident between the date of the financial statements and their release. The severe decline in oil prices at the start of 1986 took place between the date of most 12/31 financial statements and the issuance of those statements. This paper reviews the treatment which companies applied to this event. They found a high degree of consistency by affected full-cost companies.

Mr. Williamson points out the need to arrive at lair value of. oil properties to be purchased or sold. Various rule-of-thumb procedures for estimating fair value are reviewed. Special emphasis is placed on the importance of risk weighting. Several case studies of value determination are then presented.

Mr. Williamson points out the need to arrive at fair value of oil properties to be purchased or sold. Various rule-of-thumb procedures for estimating fair value are reviewed. Special emphasis is placed on the importance of risk-weighting. Several case studies of value determination are then presented.

Reserve study data are engineering estimates of recoverable mineral reserves using specific price and costs assumptions. Some controversy exists concerning which type of reserves to include and which pricing, costs, and discounting assumptions to apply. A wide range of financial statement users rely on reserve study data which include inherently subjective measurement techniques. Cooperation from a departments within a corporation is vital to accurate reserve study data preparation.

Resource rental regimes are often subtle, highly complex arrangements requiring the finesse and tact of a diplomat to negotiate an agreement balancing the economic objectives of the state and the economic objectives of the oil company. Mr. Marshall is partner in charge of the energy services tax group with Ernst & Young, London.

In the Summer, 1986, edition of the Journal of Petroleum Accounting, Dr. Koch described the use of cost-volume-profit analysis in comparing bonus bids and royalty bids for offshore tracts. In this article Professors Cheng and Smith analyze Koch's work and Point out certain perceived shortcomings in his methodology and conclusions. Dr. Koch also responds to these criticisms.

Dr. File discusses the tax treatment to be given the sale of oil and gas properties where the seller retains a "contingent interest" under which the holder of that interest is paid a portion of production proceeds when field prices exceed the specified base price during the fixed term of the interest. This type contract is being used with increasing frequency because of the uncertainty and volatility of oil and gas prices. The nature of retained interests and their impact on the taxation of the sale and subsequent payments for production are examined. Additionally, the paper considers alternative forms of the trans- action to determine the tax consequences of each.

Because gas has a wide span of heating values, the conversion of the MCF price to its BTU equivalent, MMBTU, is essential. Because the contract dictates the conversions that apply, the auditor must know what the contract contains and must be able to verify both the raw measurements and the conversion applied.

This paper discusses how the newly adopted guidance may affect the oil and gas industry, specifically with respect to accounting for production imbalances. Under the new revenue standard, the guidance related to oil and gas upstream activities will have to be reevaluated.

This article addresses several areas that a producer or processor should consider in their application of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, as standardizing revenue recognition principles to eliminate variations across industries and geographies.

The authors examine the structure of net back agreements as a pricing mechanism in the petroleum industry. The use of crude oil spot prices and product prices as a starting point for determining the setback price is discussed Yield assumptions and allowances, and fees are then summarized.

In this section. which appears for the first time in this issue, Mr. Campbell will review selected publications related to extractive industries accounting.

Short summaries of the articles in this journal.

Short summaries of the articles in this journal.