In January 2010, the Financial Accounting Standards Board (FASB) issued ASU No. 2010-03, Extractive Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures. This guidance improves the reserve estimation to include recent changes in practice and technology and disclosure requirements for equity method investments.
The publication impacts any entity that engages in oil and gas producing activities. This includes entities that are involved in the acquisition of mineral rights in properties, exploration, development and production of crude oil.
The publication accomplishes the following:
- expands the definition of oil and gas producing activities;
- amends the definition of proved oil and gas reserves;
- requires additional disclosures for proved reserves;
- clarifies consideration of equity method investments in determining significant oil and gas producing activities; and,
- requires additional disclosures related to equity method investments.
The disclosures that are required for all entities under the current guidance are as follows:
- the method of accounting for costs incurred in oil and gas producing activities;
- the manner of disposing of capitalized costs related to oil and gas producing activities;
- information about continued capitalization of exploratory well costs;
- impairment of capitalized exploratory well costs;
- amount of capitalized exploratory well costs that is pending the determination of proved reserves;
- amount of exploratory well costs that have been capitalized over one year after the completion of drilling and the number of projects these costs relate to;
- description of projects and the activities that the entity has undertaken to date in order to evaluate reserves and the projects, and the remaining activities required to classify the associated proved reserves.
The last two disclosures above were added with the new guidance while the first one was previously required for all organizations.
The following is a list of additional disclosures that are required for publicly traded companies:
- Proved oil and gas reserve quantities;
- Capitalized costs relating to oil and gas producing activities;
- Costs incurred for property, acquisition, exploration, and development activities;
- Results of operations for oil and gas producing activities;
- A standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities; and,
- Changes in the standardized measure of discounted future cash flows.
The publicly traded disclosures have all previously been required but the new guidance is asking for additional detail of the disclosures. The guidance requires more detail on types of natural resources, geographical location, and amounts associated with consolidated entities versus the entity’s share of equity method investees.
The guidance provides examples of the disclosure tables starting with ASC 932-235-55-1.
The guidance is effective for annual reporting periods ending on or after December 31, 2009 and should be adopted as a change in accounting principle inseparable from a change in estimate. Early adoption is not permitted.
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