Petroleum Accounting and Financial Management Journal

Summer 1985 Vol. 4 № 2
The Accounting Forum 1
N/A

This section contains responses by individuals in industry and public accounting to specific questions raised by our readers. Included in this issue are: Cost Ceiling for Successful Efforts Company, Cost of Abandoned Portion of Exploratory Well, Geophysical Work Undertaken as Part of Unitization

The Accounting Forum. Summer 1985, pp. 1‑8.

Income Recognition by Publicly Held Contractors Using Full-Cost Accounting 9
Jarrett Lambert and Rebecca Teague

The authors summarize the SEC's rules for recognition of income by oil operators from transactions involving properties in which the operator has an interest. These rules, promulgated in 1984 in Financial Reporting Release No. 17, govern lease brokerage activities, management fees, and service income. The authors present four examples of drilling contracts in cases where the drilling contractor holds an interest in the property involved.

Income Recognition by Publicly Held Contractors Using Full-Cost Accounting. Lambert, Jarrett and Teague, Rebecca, Summer 1985, pp. 9‑16.

Accounting for the Formation and Operation of Limited Partnerships 17
Kenneth Burke and Francis Durand

Messrs. Burke and Durand discuss the following areas of financial accounting for oil and gas limited partnerships from the viewpoints of the partnership and the general partners: organization and syndication costs; property conveyances from the partner to the partnership; fees and costs charged to the partnership; windfall profit taxes; and assessments. The authors emphasize the importance of a clear separation between the general partner and the partnership.

Accounting for the Formation and Operation of Limited Partnerships. Burke, Kenneth and Durand, Francis, Summer 1985, pp. 17‑46.

Recent Legislation Affecting Royalties, Surface Damages, and Mineral Dormancy 47
Tim Ihloff

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.

Recent Legislation Affecting Royalties, Surface Damages, and Mineral Dormancy. Ihloff, Tim, Summer 1985, pp. 47‑56.

Defining Exploratory and Development Wells 57
An Extractive Industries Accounting Research Institute Survey

This article reports on the results of a survey conducted by the Extractive Industries Accounting Research Institute. The purpose of the survey was to determine the criteria used in certain situations by respondents in classifying wells as exploratory or development. Responses from 25 full-cost companies and 30 successful-efforts companies were used. The results suggest that well classification varies considerably between companies.

Defining Exploratory and Development Wells. Summer 1985, pp. 57‑74.

A Survey of the Accounting and Financial Reporting Practices of United Kingdom Oil and Gas Companies 75
C. Terry Heazlewood

Professor Heazlewood has examined the financial reports of 50 oil and gas companies in the United Kingdom. In this article, he summarizes the results of the study. Such topics as methods used to account for pre-production expenditures, financial statement titles and classifications, depletion and amortization methods, site restoration costs, cost centers, cost ceilings, reserve disclosures, and current costs are included in the study.

A Survey of the Accounting and Financial Reporting Practices of United Kingdom Oil and Gas Companies. Heazlewood, C. Terry, Summer 1985, pp. 75‑92.

An Analysis of the Alternative Elections for Exploration Costs in the Mining Industry 93
Bob G. Kilpatrick and Larry E. Watkins

The authors analyze the election available to mining companies under Sec.617(a) of the Internal Revenue Code to expense all exploration costs (except for the first 20 percent of such costs incurred each year) and the options by which the costs expensed under Sec. 617(a) may be "recaptured." They show that the election to expense the costs should almost always be made. They also show that if mines are expected to be profitable, the costs should be recaptured by foregoing depletion until the costs are recaptured (Sec.617(b)(1)(B)). If the mines are expected to be non-profitable or only margin-ally profitable, the decision depends on several factors.

An Analysis of the Alternative Elections for Exploration Costs in the Mining Industry. Kilpatrick, Bob G.; Watkins, Larry E., Summer 1985, pp. 93‑110.

Merger Synergy in the Extractive Industries 111
Wallace Davidson, Sharon Garison, and Glenn Henderson

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.

Merger Synergy in the Extractive Industries. Davidson, Wallace; Garison, Sharon; and Henderson, Glenn, Summer 1985, pp. 111‑118.

Reforming Gas Regulation in the Face of Rising Costs and Increasing Uncertainty 119
Harry M. Trebing

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.

Reforming Gas Regulation in the Face of Rising Costs and Increasing Uncertainty. Trebing, Harry M., Summer 1985, pp. 119‑138.

Analysts' Reactions to the Disclosure of Physical Oil and Gas Reserves 139
Philip Goldstone, Bertrand Horwitz, Philip Piaker, and Paul Strebel

Disclosures of oil and gas reserve quantities have been advocated on the basis that users of financial reports would benefit from the disclosures. The authors have made two tests of the usefulness of the disclosures: (1) the increase in accuracy of analysts' forecasts of earnings per share resulting after the first disclosure by companies of physical reserves and (2) an increase in consensus in analysts' forecasts of earnings per share. The authors conclude that the statistical evidence does not suggest that the first disclosure of physical reserves had a significant impact on the ability of analysts to forecast earnings per share nor on the consensus of forecasts.

Analysts' Reactions to the Disclosure of Physical Oil and Gas Reserves. Goldstone, Philip; Horwitz, Bertrand; Piaker, Philip; and Strebel, Paul, Summer 1985, pp. 139‑156.

Joint Interest Audit—an Effective Cost Control Tool 157
Charles A. Norman

Mr. Norman first reviews the content of the typical joint operating agreement. Then he examines the Accounting Procedure accompanying the operating agreement, giving special attention to those provisions likely to have greatest impact on joint interest audits. The author then discusses preparation prior to the field work and suggests procedures to be followed in carrying out the field work. Reporting and follow-up are then briefly discussed.

Joint Interest Audit—an Effective Cost Control Tool. Norman, Charles A., Summer 1985, pp. 157‑166.