The research provides
a conceptual descriptive and analytical study of oil and gas accounting, in
2012, when the International Financial Reporting Standard was adopted,
exploration companies in Nigeria prepared their financial statement in line
with the statement of accounting standards (accounting in the petroleum
industry) upstream activities. This is between not without challenges.
Therefore the research seeks to investigate the nature of oil and gas
accounting, its challenges and proper possible solution.
regulatory bodies usually formulate industry specific standards when an
industry has peculiar characteristic of accounting for banks and non-bank
The oil and gas industry is one of such industries
that has specific accounting standards. This can be attributed to its
peculiarity interms of high capital
requirement, earning volatility, regulation, type of business ownership,
taxation, non-correlation between the amount of investment made and returns
obtained (Wright and Hallun et al, 2008)
and high sensitive to risk price risk and foreign exchange risk.
and 2012 when the International Financial Reporting Standard (IFRS) was adopted
by exploration companies in Nigeria, Nigerian companies in the upstream sector
prepared their financial statement in line with the statement accounting
standard 14 (accounting in the petroleum industry; upstream activities and SAS
17 (accounting in the petroleum industry) formulated by the Nigerian Accounting
its adoption of IFRS, Nigeria joined over 100 countries that either use or have
adopted t he accounting guidelines as stipulated by the International
Accounting Standard Board (IASB). This will ensure harmony and easy comparison
of financial statements. This is particularly useful in the oil and gas
industry considering that it is one of the most global industries. The adoption
of a common accounting framework also widens access to investment
6 applies to expenditure incurred by an entity in connection with the search
for mineral resources. The standard divides upstream activities into two groups
namely: exploration and evaluation activities and development activities. The
standard under paragraph 9 discusses exploration and evaluation activities.
Examples of expenditure that can be categorized as exploration and evaluation
according to paragraph 9 are acquisition of right to explore, topographical,
geological, geochemical and geophysical studies, exploratory drilling,
trenching, sampling cost, costs incurred in trying to evaluate the technical
feasibility and commercial violability of extracting resources. These cost are
capitalized and classified as tangible or intangible (IFRS 2011). Developing
activities involves developing the results from extractive activities. This
usually requires huge amount and paragraph 10 of (IFRS) 6 states that these
expenditures should be categorized as intangible assets and treated as per the
guideline provided in IAS 38 (intangible assets).
for the upstream sector is quite controversial and companies may choose from
either the successful efforts method or full cost method.
effort is a method of accounting for petroleum exploration and development
expenditures that permits capitalization of expenditures only a successful
projects while expenditures in unsuccessful wells are expensed. A drilling
effort is classified as successful if it results in the extraction of
economically recoverable oil and gas and classified as unsuccessful if it results
I a dry hole.
the other hand, the full cost method allows for the capitalization and
amortization of all exploration and development expenditures i.e. both
successful and unsuccessful efforts.
main difference between the two accounting method is that only cost in proven
wells are capitalized in the successful effort method while every cost is
capitalized under the full cost method.
research, therefore, seeks to investigate the nature of oil and gas accounting
practice, its challenges and solutions excerpts Ejiroghene E. (2013) Accounting
for oil and gas Reserve; implication for investors.