Wide range of policies possible from capitalisation

Wide range of policies possible
from capitalisation of all E&E
expenditures after licence
acquisition to the expense of all
such expenditures. However,
changes to capitalisation polices are
restricted to those which move the
policy closer to compliance with the
IFRS Framework.
Two formal models – successful
efforts and full cost, in accordance
with FAS 19 and Regulation S-X
Rule 4-10. Types of expenditure
that may be capitalised are defined.
Impairment of E&E assets IFRS 6 provides specific relief for
E&E assets. Cash-generating units
(CGUs) may be combined up to the
level of an operating segment for
E&E assets.
Impairment testing is required
immediately before assets
are reclassified from E&E
to development.
IFRS 6 also provides guidance in
relation to identifying trigger events
for an impairment review.
Impairment charges against E&E
assets are reversed if recoverable
amount subsequently increases.
An exploratory well in progress at
period end which is determined
to be unsuccessful subsequent to
the balance sheet date based on
substantive evidence obtained
during the drilling process in that
subsequent period suggests a non-
adjusting event. These conditions
should be carefully evaluated based
on the facts and circumstances.
No similar relief for E&E assets.
This is unlikely to result in a GAAP
difference when the company uses
successful efforts under US GAAP.
A company applying full cost
will probably be able to shelter
unsuccessful exploration costs
in pools with excess net present
value until these are depleted
through production.
No reversal of impairment charges
is permitted.
If an exploratory well is in progress
at the end of a period and after the
balance sheet date (but before the
financial statements for that period
are issued) the well is determined
not to have found reserves, the
exploration costs incurred through
the end of the period should be
recorded as expense for that period.
(ASC 855).

136 Financial reporting in the oil and gas industry
2. Reserves and Resources
Issue IFRS US GAAP
Definitions No system of reserve classification
prescribed. No restriction on
the categories used for financial
reporting purposes.
Entities must use the definitions of
reserves and resources approved
by the SEC (see section 2.8). Only
proved reserves can be disclosed
for financial reporting purposes.
Proved and proved developed are
used for depletion depending on
the nature of the costs.
3. Depreciation of production and downstream assets
Issue IFRS US GAAP
Depletion of production assets The reserve and resource
classifications used for the
depletion calculation are not
specified. An entity should develop
an appropriate accounting policy
for depletion and apply the policy
consistently, e.g., unit of production
method. Commonly used categories
of reserves include proved, proved
developed, or proved and probable.