Since 1991 courts have had the jurisdiction to assess large fines and sanctions against organizations engaging in criminal misconduct and to hold companies accountable for the misconduct of any employee at any level. Corporate codes of conduct are a good beginning, but ethical compliance across all levels of an organization is the key to protecting an organization's culpability should misconduct occur.

One of the least appreciated and least understood income tax credits in the Internal Revenue Code is the credit for tight sands gas production, found in Section 29 of the IRC. The credit may result in substantial savings in energy producers' tax liabilities. The authors explain the availability of the credit, how it is computed, and the limitations on the credit.

This is the first installment of a two-part article on crime and punishment in the petroleum industry. The subject of many of the statutes discussed in this article is the duty of oil and gas operators to maintain accurate records and report information correctly. In addition to violations of environmental laws, oil companies and their executives have been found guilty of mail fraud, wire fraud, income tax evasion, and money laundering. While most violations are not as serious as income tax evasion, failure to follow the law can have significant business and civil liability implications. Part Two of this article will appear in the Spring 2001 issue of Journal.

This is the second installment of a two-part article which began in the Fall/Winter 2000 issue of the Petroleum Accounting and Financial Management Journal. This article begins with a discussion of the Texas Natural Resources Code and moves on to selected provisions of the Texas Penal Code which have cropped up in recent oil and gas cases, such as theft of used property, theft of trade secrets, deceptive business practices, bribery, misapplication of fiduciary responsibility, tampering with governmental records, and engaging in organized criminal activity.

The disposal of the Brent Field spar in 1995 by Shell Expo was viewed by the UK government as a test case that would largely influence the way in which dismantlement's are handled in the future. It was a disaster. In March 1998, Shell Expo announced a new disposal plan which involves dismantling the rig in a Norwegian fjord and using the pieces to build a quay extension.

The editor reviews some of the pronouncements of authoritative bodies and other developments of the past year that have affected accounting and financial reporting in the extractive industries.

The most important development in the past four months affecting extractive industries accounting was the issuance of an exposure draft of an FASB Statement on Disclosures About Oil and Gas Producing Activities. The major requirements of this Proposed Statement are summarized in this section. In addition, COPAS has announced the revision of one "Bulletin" and one "Interpretation.''

In recent months both the FASB and the SEC have taken actions affecting oil and gas accounting. The provisions of the FASB's tentative Statement of Financial Accounting Standards, Disclosures about Oil and Gas Producing Activities, are briefly summarized in this section. In addition, the SEC issued Staff Accounting Bulletin 47 providing interpretation for the SEC's staff on certain oil and gas accounting matters. The entire text of this important SAB is presented on pages 133-157 of this issue.

The SEC has issued Final Rules adopting, essentially in the same form, the FASB's disclosure rules relating to oil and gas activities. In addition, the commission has issued proposed rules amending Rule 4-10 relating to full costing.

Developments in oil and gas accounting over the past four months.

Developments in oil and gas accounting over the past four months including SEC Pronouncements, SEC Releases No. 33-6483 and No. 33-6484, COPAS publications, AICPA Auditing Standards Statement, Dallas Petroleum Accountants Studying International Operating Agreements.

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

Standard setters and regulators have certainly been busy, though the debate continues on how much success they are finding with their efforts. This article summarizes recent FASB, IASB, SEC and PCAOB activities.

An update is provided on the Financial Accounting Standards Board (FASB) joint projects with the International Accounting Standards Board (IASB), “FASB-only” projects, recently released GAAP alternatives for private companies, and the Committee of Sponsoring Organizations (COSO) revised internal control framework..

Energy producers are faced with choices similar to those of consumers: what do I invest in now, how do I cut my costs, and how can I prepare for the inevitability of e-business without it costing me a fortune? The hub of hubs concept is not the ultimate answer, but it is as radical a change to doing business as the first computers were to E&P companies in the early 1980's.

One axiom of the e-business world is that events truly do occurs at the speed of the Internet. Middle market petroleum companies, whose edge over the mighty majors has been their flexibility and nimbleness, will have to adopt new automated procedures to be able to keep up with the new-found speed of the giants.

Yes, that "e". The one seen in every ad, TV commercial, and technology pitch in the past 18 months. The Internet moved from a novel technology to a vital part of our economy in record time. Companies need access to the e-business backbone (Internet) and a provider to connect to the commerce services needed. This solution exists today as forums. "Current Developments in Technology" will continue as a column written by Jim Hoffman.

Improved delivery performance, shorter lead-times, lower inventories, early warning of problems, and faster problem resolution are major benefits of doing business electronically. Conducting business electronically requires continuing development of the technical infrastructure tools that one company's back office applications use to communicate with another.

No longer a novelty, e-business is a fact of life in today's economy and can greatly facilitate the timely flow of information between an E&P company and its investors. However, not every independent oil company is eager to embrace this change.

Appearing in this issue of the Journal is a new column on environmental issues written by Dr. Charlotte J. Wright from Oklahoma State University. Dr. Wright summarizes the Financial Accounting Standard Board Emerging Issues Task Force's work relating to accounting for environmental costs, discussing specifically EITF Issue No. 89-13 "Accounting for the Cost of Asbestos Removal, "and EITF Issue No. 90-8, "Accounting for Environmental Costs."

The issue's column answers some commonly asked questions regarding environmental Auditing, specifically addressing what it is, how it relates to financial Auditing, and the motivating factors for doing environmental audits.

This issue's column is devoted to an examination of some of the environmental issues which U.S. companies must face as they expand their operations into Eastern Europe and the former Soviet Republics.

The environmental impact of NAFTA is the subject of this issue's column.

This issue's topic focuses on the manner in which environmental concerns have affected the way U.S. petroleum companies do business in Latin America.

Events in the North Sea, specifically the Brent Field Spar decommissioning, have focused attention on the difficult and expensive challenge which operators face in abandoning offshore platforms.

Environmental policy and the Environmental Protection Agency (EPA) have been the focus of partisan politics in Congress. Rather than follow the normal procedure of tackling and debating specific reform issues, the 104th Congress has adopted the rather unconventional approach of attaching reform legislation to spending and budget legislation.

A large spill in January 1996 in the Rhode Island Sound means offshore insurance costs will not be going down any time soon, particularly not for single-hull barge operators. Regional updates includes a successful clean-up fund in Oklahoma and a possible relaxation of clean-up requirements in Texas.

The AICPA's proposed SOP, Environmental Remediation Liabilities, focuses on the recognition, measurement, and display/disclosure of environmental remediation obligations.

The topic of this issue's environmental report is the Draft Statement of principles on Contingencies and Provisions from the IASC which addresses the issues of product warranties, environmental liabilities, reorganizations costs, self-insurance, future operating costs, and liabilities or contingencies relating to pending or threatened litigation.

The accounting issues surrounding offshore platform decommissioning and field abandonment are complicated, no less so the legal and operational problems. Furthermore, there is confusion over jurisdiction, cost estimates, and tax and fiscal treatment.

An FASB exposure draft from February 1996 concerning methods for accounting site exit costs will impact how virtually every petroleum company accounts for future dismantlement, closure, and environmental costs. A final statement is expected sometime this year.

The topic of this issue's column is a recent exposure draft from the FASB which addresses FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

In February 1996, the FASB issued a controversial exposure draft, Accounting for Certain Liabilities Related to Closure or Removal of Long-Lived Assets. The large number of comment letter responses caused the Board to reevaluate the project and issue a new exposure draft in August 1998 retitled, Accounting for Obligations Associated with the Retirement of Long-Lived Assets, which addresses some of those responses and attempts to clarify the FASB position.

International Accounting Standard 37, "Provisions, Contingent Liabilities and Contingent Assets," becomes effective July 1, 1999. Provisions of this standard potentially relate to numerous business activities including, but not limited to, future dismantlement, restoration, and environmental remediation.

After several delays, the FASB has issued a progress report on Accounting for Obligations Associated with the Retirement of Long-Lived Assets. The major issues covered include liability recognition and obligating events, recognition and allocation of asset retirement costs, initial measurement of asset retirement obligation liabilities, and subsequent measurement of asset retirement obligation liabilities.

The newly issued, final version of IASC Standard No. 37 addresses two issues of interest to companies attempting to account for future site closure, dismantlement, and environmental remediation costs: measurement of amounts and balance sheet recognitions.

The long-awaited Exposure Draft on Accounting for Obligations Associated with the Retirement of Long-Lived Assets was released by the FASB on February 17, 2000. This column is devoted to describing the key provisions of the Exposure Draft, especially those provisions most directly affecting companies engaged in the extractive industries.

Since the issuance last February of Financial Accounting Standards Board exposure draft No. 206-B, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets," companies have approached the issue of accounting for future DR&A costs differently, and the result has been a range of diverse accounting practices. Questions regarding the manner in which companies who are using the various methods of accounting for future DR&A costs will make the transition to the new standard have been the subject of much debate. This column examines the various methods that have traditionally been used in practice in order to gain a better perspective of the implications of the exposure draft and the eventual implementation of the new standard.

This column provides an update on the current status of the exposure draft on Accounting for Obligations Associated with the Retirement of Long-Lived Assets, along with a summary of the comments from those who submitted written responses to the Board. The major concerns as reflected by the comments were (1) scope, (2) liability recognition and obligating events, (3) initial measurement of the future asset retirement obligation (ARO) liability, (4) subsequent measurement of the ARO liability, (5) financial statement disclosures, and (6) transition.

With energy prices soaring and no end in sight for demands for still more energy, the pressure increases on the oil and gas industry to find new domestic sources. As the industry is searching for new frontiers to explore, those who are concerned with environmental preservation seek to establish many areas as being completely off limits. One "oil versus environment" issue that is evolving as a critical battleground is the proposal to open up the Arctic National Wildlife Refuge (ANWR) to exploration and drilling. The resolution of the issues surrounding the ANWR debate could have long-term effects on the future of the domestic industry.

The recently issued Statement 143, Accounting for Asset Retirement Obligations, addresses the retirement of tangible, long-lived assets and associated asset retirement costs. It amends the older Statement 19, Financial Accounting and Reporting by Oil and Gas Producing Companies in a number of ways.

The issuance in June 2001 of SFAS No. 143, "Accounting for Asset Retirement Obligations" (concerning legally enforceable obligations associated with the retirement of tangible long-lived assets) will result in a significant accounting change for many affected companies—particularly companies in the oil and gas industries.

A growing number of countries have made the decision to convert to IASB standards. By 2005 all publicly traded companies in European Union member countries must adopt accounting standards issued by the International Accounting Standards Board (IASB). Additionally, adoption of IASB standards by 2005 is mandatory in a number of other countries including Australia and Russia. The Securities and Exchange Commission (SEC) has also taken up the issue of globalization and has indicated that it intends to pursue a dual objective of upholding high quality financial reporting domestically, while encouraging convergence towards a high quality global financial reporting framework.

This column offers a side-by-side comparison between SF AS No. 143, lAS 3 7, and FRS 12, all of which involve provisions and contingent liabilities for asset retirement obligations.

Recently the International Accounting Standards Board (IASB) issued International Financial Reporting Standard (IFRS) 6, “Exploration for and Evaluation of Mineral Resources.” While there is currently no timetable for doing so, the IASB intends to comprehensively address the issue of accounting and reporting for companies in the extractive industries, including upstream oil and gas exploration and production. Meanwhile, IFRS 6 is intended to add clarity and guidance, especially for those companies that are transitioning to IASB standards in 2005.

Broadly speaking, eco-efficiency involves maximizing the efficiency of production processes while minimizing impacts on the environment. According to the World Business Council on Sustainable Development (WBCSD), eco-efficiency is achieved when the delivery of competitively priced goods and services progressively reduces ecological and environmental impacts. In an eco-efficient system, inefficient use of environmental inputs and/or outputs, including pollution and waste, are inefficiencies that can be reduced or eliminated through process improvements and innovation. Fundamental to eco-efficiency is adoption of a management philosophy that stimulates the search for environmental improvements that yield parallel economic benefits

Emissions allowances are credits or allowances that a company receives from a regulatory agency that represent the “right” to emit a specified amount of pollution. Emission allowances gave raise to emission trading programs which are widely used by governments in an effort to regulate the emissions of a variety of pollutants, including greenhouse gases.

In this issue, Dr. Wright focuses on the environmental consequences of the Republican's "Contract with America".

Advance word on a new FASB standard on accounting for liabilities related to closure or removal of long-lived assets suggests that it could change how virtually every petroleum company accounts for future dismantlement, closure, and environmental costs.

Mr. Hall reports on the Securities and Exchange Commission's rejection of its staff's proposal to abolish full costing for publicly-held companies.