Oil and Gas

Topics: Petroleum, Financial statements, Petroleum industry Pages: 15 (4928 words) Published: March 18, 2011
The natural resources of a nation, particularly the minerals, often constitute the lion's share of the nation's wealth. This is particularly true of the OPEC nations including Nigeria. Prior to the development of accounting standards issued by the Nigerian Accounting Standards Board (NASB), the financial statements published by the oil and gas industry in Nigeria did not disclose adequate information about the investments held by the reporting enterprises. Also, there was a problem of incomparability of financial statement. This gave rise to the development of accounting standard to guide the preparation and presentation of the financial statement so as to provide a guide on accounting rules, procedures, and reporting formats to be followed by companies operating in the petroleum industry in Nigeria. Petroleum operation is divided into two broad areas namely upstream and downstream activities. 1.1 UPSTREAM ACTIVITIES:

Upstream activities involve the acquisition of mineral interest in properties, exploration (including prospecting) and development of crude oil and gas. 1.2 DOWNSTREAM ACTIVITIES
This involves such activities as transporting, refining and marketing of oil, gas and its derivatives. 2.0THEORITICAL FRAMEWORK
In a bid to harmonize the financial statement in the oil and gas industry, and to prepare financial statements that meet the information needs of the various users, various regulations were issued, such as, Petroleum Act (PA) of 1969, Companies and Allied Matters Act 1990 (CAMA as Amended), Petroleum Profit Tax Act (PPTA) 1959. This was backdated to take effect January1, 1958. The Memorandum of Understanding (MOU) which came effect in 1986. Statement of accounting standards 14 which deals with Accounting for petroleum in the Upstream, SAS 17 which deals with accounting for petroleum in the Downstream, SAS 1 which deals with disclosure of accounting policies, SAS 2 on the information to be disclosed in financial statement, SAS 11 which deals with accounting for leases and, SAS 7 on Foreign Exchange translation, SAS 29 on accounting for Joint Venture and IFRS 6 (On Exploration and Evaluation of Mineral Resources) are relevant to the treatment of oil and gas accounting in Nigeria. Also important to be considered is the Nigerian Oil and Gas Industry Content Development Act is the cumulative result of decades of attempts by the government and stakeholders in the petroleum industry to ensure that the industry provides local value and maximized benefits to Nigerians. The Act defines Nigerian Content as the quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through the deliberate utilization of Nigerian human, material resources and services in the Nigerian oil and gas industry. The definition which focuses on value addition to the Nigerian economy requires that considered efforts must be made on the part of stakeholders to utilize and/or where appropriate, ensure the utilization of Nigerian human and material resources and services. Efforts to give effect to the local content policy include establishment of various research, development, training, education and support funds; provisions in the Petroleum Act on mandatory employment and training of Nigerians by petroleum operators, provisions on technology transfer, local content utilization, recruitment and training of Nigerian personnel contained in various contractual arrangements with International Oil Companies (“IOCs”), and the compliance with insurance, financial and legal services provisions, submission of annual Nigerian content performance report and establishment of a project office within the project catchment area and community of operations run by approved personnel. The current Petroleum Industry Bill (PIB) which is yet at its second reading in the...

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