This section contains responses by individuals in industry and public accounting to specific questions raised by our readers.

The Accounting Forum. Spring 1985.

Can the cost of the gathering lines be considered marketing costs and be used when determining the value upon which to pay royalty?

Using Marketing Costs in Determining Royalty Values. Editor, Spring 1985, pp. 5‑8.

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?

Production Payment Carved Out of Unproved Properties. Gearheard, Jerry, Spring 1985, pp. 8‑11.

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?

Relief Well Drilled to Control Blowout. Jones, Larry G., Spring 1985, pp. 11‑12.

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?

Treatment of Drilling Rig Day Rates in Excess of Current Market Rates. Dickson, William D., Spring 1985, pp. 12‑14.

Should Company A account for any portion of $10 million in 1984 if well is not completed prior to publishing the year-end financial statements? Who should account for that portion of the cost in 1984 if the well was actually completed and tested as dry prior to issuing the year-end financial statements?

Turnkey Drilling Contracts. Gearheard, Jerry, Spring 1985, pp. 14‑16.

Summary by John Jolly about the development of the computerized equipment pricing system for the oil and gas industry.

Computerized Equipment Pricing System. Jolly, John E., Spring 1985, pp. 17‑18.

Informs readers of recent events affecting accounting in the extractive industries.

Current Developments. Jolly, John E., Spring 1985, pp. 17‑18.

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

Proposed AICPA Audit and Accounting Guide. Hendrickson, Michael D., Spring 1985, pp. 19‑21.

Mr. Reed, Petroleum Industry Analyst in the Internal Revenue Service, out-lines the examination approach used by the IRS in Auditing the windfall profit tax including "first purchaser'' examinations, "operator'' examinations, and "producer" examinations. Mr. Reed also describes the work performed on WPT audits in the Austin Service Center and in the appeals division. He places special emphasis on audit problems relating to the net income limit.

Current IRS Practices and Procedures in the Windfall Profit Tax Program. Reed, Klein, Spring 1985, pp. 23‑34.

Ms., Wagoner reports on the results of a survey of interest capitalization rules of 23 oil and gas companies. Such topics as minimum amount required for capitalization, minimum time period for capitalization date capitalization period begins and borrowings included in computing the capitalization rate are covered.

Capitalization of Interest: 1984 Oil and Gas Study. Wagoner, Alicia C., Spring 1985, pp. 35‑40.

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 Estimation: Factors in Developing Fair Market Value. Williamson, Jr., Roy G., Spring 1985, pp. 41‑66.

The International Committee of the PASD reports on a study of the various forms of accounting procedures in five areas of the world. The study covers agreements among participating companies; it does not cover agreements between companies and host governments.

Comparison of Accounting Procedures in International Joint Operations. Spring 1985, pp. 67‑74.

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.

Project Financing. Bell, Alan, Spring 1985, pp. 75‑80.

The decline in gas prices and the temporary oversupply of gas has led to marked changes in the approaches to drafting gas contracts and in the terms of those contracts. Mr. Rush reviews typical provisions in currently-negotiated contracts, discusses accounting problems brought about by FERC and the deliverability surplus, and analyzes the potential impacts of price decontrol.

Gas Purchase Contracts and Today's Changing Natural Gas Industry. Rush, R. W., Spring 1985, pp. 81‑92.

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.

Reporting Accounting Changes under the New SEC Full Cost Rules. Acker, Leonard, Spring 1985, pp. 93‑96.

Dr. Klingstedt reviews several aspects of the oil and gas industry affected by the 1984 Tax Act. The topics include tax shelters, depletion, windfall profit taxes, and corporations. Much of the article deals with changes in partnership tax rules.

The Application of Certain Aspects of the 1984 Tax Act to the Oil and Gas Industry. Klingstedt, John P., Spring 1985, pp. 97‑108.

Mr. Campbell points out that the windfall profit tax is generally considered to be an excise tax, but that some state governments contend that the WPT is a Federal income tax (and thus not deductible in arriving at the state income tax). Mr. Campbell argues that the WPT is clearly a Federal excise tax, supporting his argument by reference to various sources.

The Windfall Profit Tax: Excise Tax or Profits Tax? Campbell, Alan D., Spring 1985, pp. 109‑116.

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.

Measuring Social Performance for Coal Mining: A Guide for Developing a Social Accounting Program. Morris, James and Younkins, Edward, Spring 1985, pp. 117‑136.

The authors have examined the prices of shares of stock and of units in royalty trusts formed by the eight oil companies forming royalty trusts traded on the New York and the American Stock exchanges. They conclude that stockholder values are enhanced by the creation of such trusts.

Do Royalty Trusts Create Value? Davidson, Wallace; McDonald, James; and Worrell, Dan, Spring 1985, pp. 137‑148.

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.

Issues in the Deregulation of Oil Pipelines: An Empirical Analysis. Fanara, Jr., Philip, Spring 1985, pp. 149‑165.