Accounting and Advisory Services for the Oil & Gas Industry

LBO models are even more similar to what you see for normal companies, and just like with merger models you need to include a sensitivity analysis on commodity prices somewhere in your model. Then, you add up and discount everything based on the standard 10% discount rate used in the Oil & Gas industry (no WACC or Cost of Equity here). You focus on Production and Development expenses here, both of which may be linked to the company’s production in the first place. Instead, you assume that the company adds nothing to its reserves and that it produces 100% of its reserves until it runs out of natural resources completely. For E&P companies, there’s an alternate intrinsic valuation methodology called the Net Asset Value (NAV) model that often gives more accurate results.

Time-consuming, disorganized records are the bane of any oil and gas accounting department. Petroleum accounting software captures all the business’s financial information and integrates with tax filing programs to create reports that require less time and resources. Taxes filed inaccurately or late can result in fines, penalties, and even legal issues. An accounting software allows you to bypass these pitfalls, ensuring a smooth tax season. A surprisingly simple step to accomplishing this is the easy switch from manual accounting processes to an industry-specific oil and gas accounting software. It’s all too easy to make mistakes during data input and extraction, and it can be difficult to access and analyze the data.

Oil and gas accounting: frequently asked questions from the industry

To avoid this issue, JIB accountants can use a software that gives them what they need – automated COPAS overhead and an insurance application. Each of these has its own unique set of departments that handle the various entries and procedures to ensure costs and revenue are accounted for properly. You can roll up most niche accounting functions into one of those six primary functions because all industries have capital expenditures, operating costs, G&A, revenue, and production. Open Reporting 
You should be able to build powerful and useful ad hoc reports and dashboards.

• When you project a natural resource company’s statements, you begin by projecting its production by segment based on its reserves and its historical patterns.
• More commonly, oil and gas companies look at OGsys, W Energy, Enertia, and others in this category as suitable platform options.
• For purposes of this tutorial, we’re going to focus on Upstream, or E&P (Exploration & Production) companies because those are the most “different” from normal companies – and they’re the most common topic in interviews.
• Nobody knows everything in this profession…and even if they did, it would change anyway!
• The theory behind the FC method holds that, in general, the dominant activity of an oil and gas company is simply the exploration and development of oil and gas reserves.
• Accounting by way of spreadsheets often leads to more errors than using accounting software, and errors increase the chances of getting audited or, in the event of an internal audit, it increases the chance of mistakes being found.

P2’s AFE workflow application aids in tracking the AFE approval process and provides reports and dashboards to compare budget versus actual charges as they are incurred. Upstream oil and gas organizations must meticulously record, track, distribute, and report sales of oil, gas, and other products. Accurate and timely oil and gas revenue accounting requires tracking complex contracts and owner lease agreements, and is made increasingly difficult by new challenges such as horizontal drilling. P2 supports the needs of oil and gas revenue accounting by providing the flexibility to track multiple ownership arrangements on a single division of interest.

Valuing Oil and Gas Properties

Since these capabilities are often released in software updates, when a client doesn’t upgrade regularly, it’s another point that causes a perceived need for new software. When companies use software that no longer updates, they quickly outgrow it and need to find a replacement. In choosing a new oil and gas accounting software, it’s important to choose a progressive platform managed by a company that is here to stay and believes in continuously perfecting its product. Cloud-based programs have the added bonus in that they update without needing manual upgrades. When talking to different vendors, ask them about their roadmaps and how often they update their program for software glitches and new features.

COPAS has great learning opportunities, leadership opportunities, and ways to develop relationships with other accountants and oil and gas professionals. You will work hard when you get involved, but the experiences, people and benefits will be worth it. PwC US Energy practice provides audit and assurance, tax, advisory, and consulting services to help https://www.bookstime.com/ energy businesses address key issues. ​On May 28, 2014, the FASB and IASB issued their final standard on revenue from contracts with customers. The standard outlines a single comprehensive model for entities to use in accounting for revenue. This section dives into the changes in the key accounting issues due to the new revenue recognition standard.

Oil and Gas Accounting Standards

The update discusses matters critical to oil and gas entities, including updates to SEC, FASB, and tax guidance with a specialized focus on the oil and gas industry. If your company is on the lookout for high-quality oil and gas accountants, talk to EAG Inc.. We offer a host of helpful back-office administrative services designed to help you drive your business forward. When it comes to oil and gas companies, everything revolves around how they treat capitalized costs. At EAG Inc., we think of “best practices” as the set of techniques and procedures that allow you to produce the most efficient results with the least number of resources.

You want to track the beginning and ending reserves each year, the annual production volume, and the average price for each commodity; typically you use the same low/mid/high price cases that you used in the company’s operating model. That seems straightforward, but it gets confusing on the other financial statements because some companies apply these standards inconsistently and use a “mix” of both. Under the successful efforts methodology, you expense them, and under the full cost methodology you capitalize them and add that CapEx to the PP&E on your balance sheet.

Better Communications for Oil & Gas Accountants

Accounting systems are designed to give numbers meaning and to perform automated calculations. Every accounting system comes with automated processes that accounting departments can use to take care of some repetitive and menial tasks. Automating tasks, like number crunching and sending alerts, saves time and increases efficiency.

With an oil and gas-specific software solution, details aren’t lost, and you save time and money by eliminating spreadsheets and manual processes. DD&A, production expenses, and exploration costs incurred from unsuccessful efforts to discover new reserves are recorded on the income statement. Initially, net income for both an SE and an FC company is impacted by the periodic charges for DD&A and production expenses, but net income for the SE company is further impacted by exploration costs that may have been incurred for that period.

Services

Additionally, a lot of time and energy is spent preparing data in disconnected spreadsheets, that can easily lose the data when compiling them. With an oil and gas accounting tool, it’s easy to track internal expenses across departments, maintain orderly records, quickly compare costs, and identify problem areas. Additionally, dealing primarily with transactions, revenue, and costs from external sources, it’s important for oil and gas organizations to have a simple process for maintaining records internally. All oil and gas accounting systems claim they can manage the unique needs of upstream oil and gas operators. When purchasing an accounting system, we recommend looking at what makes your company unique and clearly defining, “why you need a new accounting system.” In most cases, the answer is not clearly defined before the software selection process begins.

• Accounting software designed specifically for the oil and gas industry can streamline account processing and provide tools and insights that are tailored to the industry-specific needs.
• The only way to control the flow of your money is to understand the flow of your money.
• It’s also important to define the functional requirements you need for this software – particularly around its ability to support your organization’s financial processes and deliver valuable business insights.
• To ensure they aren’t permanently lost, it’s important to track receivables and monitor how late they are.
• With P2’s joint venture accounting solutions, companies are able to make the ownership adjustments necessary to effectively manage and report changes to their joint venture partners.
• The truth is, no matter how expertly data is originally analyzed, the further it travels from its source, the more difficult it is to discern its context and meaning.

Fractional ownership management has grown more complex with increased scrutiny from regulatory agencies. P2 solutions meet the oil and gas accounting organization’s need to effectively track and report critical individual ownership information. A business in the oil and gas industry requires certain functions from accounting software that are typically not offered by generic accounting platforms.

Drilling into challenges and exploring financial opportunities

Manual journal entries are guaranteed to occur in every oil and gas organizations’ accounting department. They’re created to find and fix any errors, record transactions not passing through sub-ledgers (JIB, Revenue, AP, etc.), and ensure ledgers are accurate. Ensuring your system can handle and maintain accurate ledgers when a manual journal entry is posted and provide the precise audit trail needed to trace each transaction is an asset to any upstream oil and gas organization. The effect of choosing one accounting method over another is apparent when periodic financial results involving the income and cash flow statement are compared. Each method highlights the individual costs, which fall into the categories of acquisition, exploration, development, and production, differently. However, such a comparison also points out the impact on periodic results caused by differing levels of capitalized assets under the two accounting methods.