Financial analysis of fiscal regimes is part science and part art. Many factors determine the profitability of a given fiscal system—division of revenues, division of profits, cost recovery, access to gross revenues, ring-fencing, crypto taxes—to name only a few. Daniel Johnston helps clarify some of the diverse terminology and simplifies the process of comparing "take" calculations.

Through a survey of 340 CEOs of major oil firms, the writers have evaluated the decision making process used in evaluating plays and allocating resource for financing exploration efforts. The authors analyze the influence of factors such as sources of investment capital, information and data sources, frequency of use of quantitative methods, frequency of evaluation of plays, and the impact of budget size on the decision to invest in exploration.

Professor Deakin focuses on the practical problem faced by oil and gas companies in determining income within a state for tax purposes when a corporation operates in more than one state. He analyzes the common methods for attributing income to a jurisdiction-allocation to situs, separate accounting and formula apportionment. Dr. Deakin then discusses the impact of alternative methods on tax liability and gives examples of tax-planning strategies.

In this, the first of three articles in this edition dealing with internal control, theft, and fraud. Mr. Burk describes an approach for studying and evaluating internal accounting controls called Transaction Flow Analysis. Mr. Burk describes how the segregation of an entity's business and the related accounting systems into a financial planning and control function and interrelated cycles facilitates the evaluation of international controls. The control program involves a risk oriented overall review of an entity, a thorough study of the accounting controls in each cycle, an evaluation of the internal control system. and compliance testing.

A review of the potential savings an oil or gas company can realize by being aware of sales tax exemptions and why companies may neglect to capitalize upon such tax savings opportunities.

Should the well be considered exploratory and hence charged to expense if dry?

Mr. Landrum, too, examines the question of whether a ceiling should be placed on the capitalized costs of proved oil and gas properties. He concludes that a ceiling is appropriate, but that it should not be applied on field-by-field or lease-by-lease basis.

There are several important things to be aware of before negotiating with the IRS. This article gives an overview and guide in preparing and dealing with IRS examinations.

This article reports on a survey of full-cost companies conducted this fall when the SEC was considering eliminating full costing as an acceptable accounting practice for publicly-held companies.

Although accounting rules require a ceiling test for full cost companies, the rules are silent with respect to such a test for successful efforts companies. With the severe decline in crude oil and natural gas prices, many companies found that their historical costs exceeded the values of their properties. This paper reviews the extent to which successful efforts companies employ ceiling tests as well as the factors that are taken into account in those test calculations.

In Libya, the financial reporting laws are used primarily to calculate the division of profits between oil companies, as co-ventures, and the Libyan state. The rules for financial reporting and accounting practices are dictated by the Libyan Petroleum Law and the Petroleum Regulations. This article reviews the current oil and gas accounting rules under the Petroleum Law and Petroleum Regulations and compares US and UK GAAP with actual oil and gas accounting practices in Libya.

This report on a survey of companies who changed from full-cost accounting to the successful-efforts method, or from the latter to the former, suggests that a major reason that such changes were made was to enhance the appearance of the financial statements. Ms. Nichols also discusses the effects of changes on selected financial ratios.

This research report compiled by Ms. Sue Zant of the Extractive Industries Accounting Research Institute staff summarizes responses from 21 integrated and 20 independent oil and gas producing companies to a survey conducted by the Institute. Among topics covered in the survey are treatment of costs of abandoned portions of exploratory wells that find oil and gas, effects of reserve estimate changes on amortization in interim reports, techniques for recording impairment of unproved properties, valuation of lease inventories of crude oil, application of cost ceiling to leases or fields, capitalization policies for certain costs, accounting for future reclamation costs. and asset transfers.

This article discusses trends reflected in the 2014 Grant Thornton LLP survey of U.S. oil and gas companies, conducted in partnership with Hart Energy.

In the past year the decline in demand for natural gas has caused the effectiveness of many take-or-pay contracts to be called into question. The authors review the economic events that Jed to rapid growth in the number of such agreements and that have since caused many of them to be dishonored or challenged. Then, Messrs. Grier and Miglicco analyze the accounting problems for both producers and purchasers arising from the economic circumstances.

Corporations attempt to maximize shareholder value by optimizing the trade-off between risk and return or, even better, by lowering their cost of funds without increasing their risk. This article examines the interaction of corporate capital structure, pension investment strategy, and shareholder value in the petroleum industry.

Part I of this article (Fall/Winter 2009, Vol. 28, № 3) discussed certain federal income tax considerations relevant to the purchase or sale of individual oil and gas properties. Part II discusses some of the common tax issues that arise in the purchase and sale of an entire oil and gas business.

This article discusses certain federal income tax considerations relevant to the purchase or sale of oil and gas properties.

This paper discusses the federal tax implications of the definition of capital assets and sale of partnership interest under Section 1221; ordinary income reportable on sale of partnership interest, Sections 1245 and 1254 recapture; issues and problems for calculation of recapture under Section 751; and ordinary income reportable on sale of S Corporation stock holding oil and gas properties.

In this article (the first dealing with taxation that has been published in the Journal) the authors examine in detail the facts and conclusions of the Keller case, dealing with deductions for prepayment of IDC, and the implications of the case.

This article describes various tax incentives related to production, energy conservation or environmental concerns that can have significant financial impact on businesses and their customers.

The passage of the Small Business Job Protection Act of 1996 signaled the long-awaited S corporation reforms. Changes impact the number of eligible stockholders, tax-exempt organizations, grantor trusts, debt classification, and invalid election relief.

This article, in Part I, identifies the expected federal income tax results for joint operations in two typical farmout transactions.

This article, in Part II (see Part I in the Spring 2017 issue), discusses federal income tax rules impacting the tax results for the parties to the traditional farmout transaction, using a tax partnership to achieve the expected tax results for the traditional farmout transaction.

Mr. Robason reviews the provisions of the 1986 Tax Reform Act that have an impact on the oil and gas industry. These changes include such industry-specific items as percentage depletion, IDC, and recapture of IDC and depletion on disposition of an oil and gas property. Non-specific changes include changes in such items as ACRS, the ITC, accounting rules, passive loss limitations, the alternative minimum tax, investment interest limitations, elimination of capital gains treatment, and foreign investment taxation.

The Tax Reform Act of 1984 added several provisions to the Internal Revenue Code to identify and penalize "abusive tax shelters" and their promoters and participants. The Tax Reform Act of 1986 made minor changes in the existing tax shelter registration rules. Mr. Pershall discusses the tax shelter registration provisions as they affect the oil and gas industry, with special emphasis on investments subject to registration, responsibility for registration, maintenance of investor lists, and penalties.

Mr. Mark and Ms. Eason discuss the effects of the "economic performance" concept and tax shelter registration provisions of the 1984 Tax Reform Act on oil and gas companies. The effects of the economic performance rules on both accrual basis and cash basis taxpayers are examined. Various provisions of the tax shelter rules are discussed.

Last fall, the IRS and Congress enacted significant changes (now in effect for 2001 and subsequent years) concerning the calculation of depreciation. This article focuses on how those changes affect the depreciation of oil and gas equipment classified in Asset Class 13.2 of Revenue Procedure 87-56, 1987-2 C.B. 674 (oil and gas producing equipment, 7-year general recovery period). In addition, the article reviews the depreciation for Indian reservation property and the impact upon it of the changes made in 2001.

On average, upstream energy companies investigate replacing their back office software every seven to ten years. Today's CFO must decide to whom to trust the computer systems that run this business. What functionality will truly make a difference in the bottom line? How can you keep up with industry practice changes, business process improvements, and the ever growing technological and system compatibility needs of the industry? How can you use your business computer system to make money rather than just track what happened?

Mr. Mark analyzes various sections of the Technical Corrections Act of 1982 that affected the windfall profit tax on crude oil producers.

The past few years have witnessed the rise and fall of many technically advanced—but struggling—young companies, originally touted as having revolutionary offerings for the oil and gas industry. By examining some of the premises and principles on which energy oriented tech companies such as business-to-business exchanges and back office software companies are founded, we may gain some insight into why some succeed and many subsequently fail.

Virtually every oil and gas lease executed in Texas within the last seventy-five years contains the same standardized provisions regarding its duration: The lease is to last for a specified period, such as five years, and as long thereafter as oil or gas is produced. Throughout the twentieth century a variety of clauses were added to oil and gas leases to protect the lessee against termination in many of the most common situations causing temporary cessation of production. A series of cases out of the Texas Panhandle are attempting to define the circumstances under which the "temporary-cessation-of-production" doctrine preserves an oil and gas lease.

Mergers have become a major factor in the restructuring of the petroleum industry in recent years. Although mergers are popular, research suggests that acquiring firms rarely experience share price gains from mergers. Moreover, firms that bid to acquire others often experience significant share price declines if a merger falls through. On the other hand, firms that are merger targets experience price run-ups on the announcement of an acquisition, and declines when mergers fail. The question is whether these phenomena also apply to the oil and gas industry. This paper examines the share price behavior of firms in the oil industry when mergers fail.

Determining taxable surplus under Texas franchise tax rules has been in a state of flux since the Texas Supreme Court ruled that companies could use either the "book "or "tax" basis for measuring taxable surplus. Legislation to require taxpayers with surplus in excess of $1 million to use GAAP accounting is now law. However, there are tax planning opportunities in this new provision. This article discusses the changes in the law and how they affect oil and gas producers.

The Texas Comptroller of Public Accounts issued on December 11, 2007, the final set of rules implementing the Texas Margin Tax. The purpose of this article is to present those provisions of the Rules that are different from or clarify the Margin Tax statute, as amended. This concludes a two-part series on the Texas Margin Tax; Part I appeared in the Summer 2007 Petroleum Accounting and Financial Management Journal.

The global petroleum market offers both tempting rewards and numerous drawbacks. This articles advises on typical ways to enter the international market, problems newcomers encounter, the variety of fiscal regimes, and assesses the prospects of various regions.

A review of three recent state tax cases and how they affect the taxation of energy-related income and properties.

Many oil and gas firms using the full cost accounting method faced write downs due to the collapse of oil prices in early 1986. Some took early write downs to 1985 earnings; some took write downs in the first quarter of 1986; and others changed accounting method. Often 1986 prices were used for the 1985 write downs. Professor Chen analyzes the inconsistencies in the differently timed write downs.

This article discusses the modern-day cause and effect of oil and gas drilling that spotlights the petroleum industry's pressing responsibilities as well as the tremendous leadership opportunities that exist for water use innovation and environmental stewardship.

This article analyzes the role of toehold acquirers in the corporate governance of oil and gas firms and examines whether the stock market response to toehold acquisitions of oil and gas firms is consistent with the disciplining role of corporate takeovers.

Opposition to energy development in the United States is fed (perhaps "fueled" would convey the irony better) by a basic set of values about protecting our environment and preserving areas of wilderness. Although we Americans consume energy conspicuously, many of us oppose energy development passionately. This is a paradox our society cannot long sustain. This article proposes principles to undergird an energy ethic and explores how that ethic might lead us to a national consensus on the balance of development, protection, and preservation needed for the years ahead. Opposition to energy development in the United States is fed (perhaps "fueled" would convey the irony better) by a basic set of values about protecting our environment and preserving areas of wilderness. Although we Americans consume energy conspicuously, many of us oppose energy development passionately. This is a paradox our society cannot long sustain. This article proposes principles to undergird an energy ethic and explores how that ethic might lead us to a national consensus on the balance of development, protection, and preservation needed for the years ahead.

This paper considers the hypothesis that an expectations gap exists between multinational oil companies (MOCs) and other stakeholders on issues relating to the reporting of decommissioning of oil and gas facilities. The main hypothesized gap relates to the duties of the MOCs and the expectations of other identified stakeholders in relation to the reporting of the MOCs' decommissioning performance.

The costs of carrying crude oil and product inventories are highly significant to integrated producers. With added price volatility, carrying large inventories becomes a very risky business. This article shows how Conoco manages its inventories through spot market trades and through use of the financial instruments now available for trading in crude oil.

In this article Mr. Howden discusses the joint venture nature of oil and gas investment and production, and the tremendous amount of information that needs to be shared. The need to share information provides an excellent opportunity to automate relevant transactions by using the internet and centralized data exchanges, which make the accounting and reporting process faster, easier and more economical.

In restating its financial statements at the time of the change of accounting method on January 1, 1985, may the company restate on the basis of excluding all unevaluated costs? If not, what restatement basis can be used that most nearly approaches the SEC's exclusion rule permitting such costs to be excluded?

How should the cost of CO2 injectants used in enhanced recovery projects be accounted for?

What is the accounting treatment for the excess of rentals paid over the current day rate? Should it be considered as simply a portion of the total drilling cost; should it be charged to current expense; or should the excess be capitalized in some special account? Also, would the accounting treatment differ depending on whether the company accounted for its oil and gas operations using the successful-efforts or the full-cost method?

Ms. Burrow reviews the required accounting treatment of dry holes under the successful-efforts method, the importance of the distinction between exploratory wells and development wells and the requirements for a well to be classified as "development." She concludes that very few dry holes should be classified as development wells.

The author discusses the rights and obligations of the parties to take-or-pay provisions in minimum quantity clauses of gas purchase agreements. The article analyzes typical contractual considerations given to take-or-pay situations and reviews the options available to sellers and purchasers in resolving disputes created by rake-or-pay provisions.

If Company A uses the successful efforts method of accounting, what disposition should it make of the $298,000 uncollectable from Company B? Assuming Company A uses the full cost method, what disposition will it make of the $298,000?