Natural Resources
Project Objective:
The objective of this project is to develop an accounting standard for the oil and gas natural resources owned by or under the stewardship of the federal government. Specifically, to determine under what conditions a value and a quantity should be measured and reported for oil and gas, how revenue and the related costs should be recognized and measured, and what disclosures or supplemental information are essential to meeting the reporting objectives. The accounting standards for oil and gas shall be developed to meet the federal financial reporting objectives (SFFAC 1), subject to the pervasive constraint that benefits exceed cost.
Staff Contact:
Julia Ranagan, ranaganj@fasab.gov, 202-512-7377
History of Board Deliberations (reverse chronology)
April 16 – 17, 2008
The project was not discussed at the April Board meeting. Staff expects
that a detailed summary of the eight comment letters received will be provided
at the June Board meeting.
February 13-14, 2008 Board Meeting
The Board received eight comment letters on its recent exposure draft regarding oil and gas resources. These letters are available at http://www.fasab.gov/commentletteroil.html.
At the February meeting, the Board decided that a public hearing was not necessary.
December 4-5, 2007 Board Meeting
Since the comment period was extended until January 11, 2008, the project was not discussed at the December Board meeting.
September 19-20, 2007 Board Meeting
Comments on the proposals presented in the May 2007 ED were requested by September 21, 2007. However, because the Board received a request for the comment period to be extended and because few responses have been received, the Board agreed to extend the comment period until January 11, 2008.
July 25-26, 2007
Since the ED was released for public comment in May, the project was not discussed at the July 2007 Board meeting.
May 23-24, 2007
An exposure draft entitled Accounting for Federal Oil and Gas Resources ED was issued for public comment on May 21, 2007. Comments on the proposals presented in the ED are requested by September 21, 2007. The ED in PDF format and a separate Word file presenting the specific questions raised in the ED may be retrieved by accessing the Exposure Drafts and Documents for Comment link at www.fasab.gov.
Accounting for Federal Oil and Gas Resources ED (PDF)
March 21-22, 2007
A ballot draft exposure draft (ED) is currently being voted on by members. Staff believes the ED will be issued for public comment in mid to late-May. The Board expects to endorse field testing of the proposal (including the alternative methodology proposed by one member).
January 17-18, 2007
The Board is continuing to make revisions to the exposure draft (ED) entitled Accounting for Federal Oil and Gas Resources. Major changes made to the ED since the November 2006 Board meeting include:
- The text of the ED was revised to establish a liability in conjunction with the recognition of the asset estimated petroleum royalties and revenue collections designated to be distributed to others, e.g., the states, the general fund of the U.S. Treasury, and other federal agencies. In addition, the pro-forma transactions and financial statements were also revised to address the liability
- The transmittal letter in the ED, the question pertaining to an alternative view and the Executive Summary were revised to call attention to the alternative view and to provide references to it in each of these three sections.
- Question number 3 was revised to ask how disclosure information and RSI would be used and the Basis for Conclusions was expanded to support the question.
The Board members were in general agreement with the changes that were made and approved staff’s request to circulate a pre-ballot before the March 2007 Board meeting.
Transmittal Letter for January 2007 revised Accounting for Federal Oil and Gas Resources ED
November 15 – 16, 2006
The Board is continuing to make revisions to the exposure draft (ED) entitled Accounting for Federal Oil and Gas Resources. Major changes made to the ED since the July meeting when this project was last discussed include:
- The value of estimated petroleum royalties from natural gas plant liquids (NGPLs) are now proposed to be calculated separately from those from oil and lease condensate.
- The pro forma transactions, the pro forma financial statements, and the pro forma disclosure and RSI presentations were revised due to the decision to identify and calculate the value of estimated petroleum royalties separately for NGPLs.
- A clarification was made to use the “dry” gas price when calculating the value of estimated petroleum royalties for gas.
The Board tentatively agreed that a liability exists and should be recognized for the estimated petroleum royalties which the government is obligated in accordance with authoritative laws and regulations to distribute to others. The revised draft ED will be discussed at the January 2007 Board meeting.
September 27-28, 2006
The project was not discussed at the September Board meeting.
July 26-27, 2006
The Board is continuing to make revisions to the exposure draft (ED) entitled Accounting for Federal Oil and Gas Resources. Significant changes made to the ED since the May meeting include:
- The addition of an alternative view from the CBO regarding fair value and recognition of unproved reserves;
- The addition of disclosure requirements showing the factors that produce the asset value for each reported period;
- The movement of the sales volume and sales value information to RSI from disclosure; and
- The addition of two questions in the Request for Comments section of the ED – one pertaining to fiduciary activities and the other regarding disclosures for the consolidated financial report (CFR).
During the July meeting, the Board agreed on the following:
- The method of valuing natural gas liquid (NGL) proved reserves;
- The price to be used to value gas;
- A clarification of the term “deterministic”, which is a term used to measure and report single best estimate of recovering oil and gas reserves; and,
- A pre-ballot ED could be circulated by staff.
Based on these decisions by the Board members, staff will make the appropriate revisions to the ED and circulate a pre-ballot ED to the Board members before the September Board meeting. The tentative plan is to formally ballot the ED at the September Board meeting to issue the ED for public comment.
May 24-25, 2006
The Board discussed an issue paper on royalty free production of oil and gas, a revised draft exposure draft (ED), entitled Accounting for Federal Oil and Gas Resources, and a suggestion by FASAB staff to study coal in the next phase of the natural resources project.
Certain Federal oil and gas leases authorize oil and gas operators to produce oil and gas during the year without having to pay royalty up to a certain production quantity or market price threshold. During discussions on the royalty free production issue paper, Board members agreed that a requirement would be added in the ED to report the annual estimated value for royalty relief as required supplementary information. In addition, they agreed that a question should be added to the Request for Comments section of the ED pertaining to this requirement.
In regard to discussions on the revised draft ED, Board members suggested additional minor changes and agreed that a pre-ballot could be circulated by staff. Therefore, a pre-ballot will be circulated before the July Board meeting and, if feasible based on member comments, a ballot on the ED will be provided in material for the July meeting.
Although, FASAB staff had suggested studying coal in the next phase of the natural resources project, it was suggested by one Board member that, instead of focusing strictly on coal, staff look at a group of mining minerals. The objective would be to see if it is possible to come up with a standard which has similar principles for a group of mining minerals. Board members agreed with this suggestion and staff will begin the next phase of the natural resources project studying a group of mining minerals.
March 29-30, 2006
The Board discussed a revised draft exposure draft (ED), entitled Accounting for Federal Oil and Gas Resources. In the ED transmittal letter to the Board, staff had indicated that during the Board meeting it would like to get members’ thoughts on royalty free production of oil and gas in the Gulf of Mexico . The proposed accounting standards for oil and gas resources would not result in separate recognition or disclosure of this royalty free production. Therefore, before discussions on the ED began, staff explained that, while it had not yet thoroughly researched and considered the issue of royalty relief, there were various options for addressing the issue. Staff provided a summary of the different options. After a brief discussion, the Board members agreed that more factual information on the royalty relief program is needed for discussion and asked staff to research the issue.
During discussions on the draft ED, Board members agreed that for the next meeting staff should do the following:
- Review the definitions presented in the text of the proposed standards for possible relocation to the glossary.
- Prepare questions for respondents for incorporation in the ED that address:
- the level of information requested to be disclosed in the footnotes or displayed as RSI;
- the challenges posed by the use of the present (or discounted cash) value measurement attribute for measuring the value of the Federal government’s estimated petroleum royalties; and,
- the use of reserves classified as proved, probable, and possible to calculate the value of the Federal government’s estimated petroleum royalties for capitalization on the balance sheet, instead of using only the proved reserves as proposed in the ED
- Revise the paragraphs in the ED that address the “Rights to Future Royalty Stream Identified for Sale ” to clarify how they should be accounted for and reported.
January 11-12, 2006
The Board discussed a draft exposure draft (ED), entitled Accounting for Federal Oil and Gas Resources. Before discussions on the ED began, staff described the proposed calculation in the proposed standards for valuing the Federal government’s royalty share of proved oil and gas reserves, referred to as “estimated petroleum royalties”. Staff explained that instead of using national level information to calculate the estimated petroleum royalties, staff proposed using estimated quantity, price, and royalty rate information on a regional basis. The values of estimated petroleum royalties calculated on a regional basis would be added together to provide a national value of estimated petroleum royalties for reporting on the balance sheet. In addition, staff explained it had addressed future royalty rights held for sale in the proposed standards.
During discussions on the draft ED, Board members provided many suggestions for improving the ED but otherwise gave tentative approval of the proposals. Staff will make the changes suggested by the Board members and develop a pre-ballot ED.
October 5-6, 2005
Board members discussed the staff proposed formula for valuing the estimated value of the Federal government’s royalty share for proved oil and gas reserves on lands under the control of the Federal government, referred to as “estimated petroleum royalties.” The value of estimated petroleum royalties would be calculated by multiplying the estimated aggregated quantity of proved oil and gas reserves by the national average well head price for natural gas, or the national average first purchase price for oil, times the national average royalty rate.
One Board member commented that a regional average price and regional average royalty rate were available and would provide better information. He indicated that it was too early just to move to the national averages. The Board member said the standards should have some requirement to account for royalty streams that were sold below value; and, to have some idea of whether the nation was better off or worse off with the transaction.
Board members agreed with the staff proposed formula for valuing the Federal government’s estimated petroleum royalties. In addition, the Board members agreed to add a requirement in the proposed standards to address the accounting for royalty streams identified for sale.
Staff will develop a draft Exposure Draft (ED) for the January 2006 meeting. Staff will also analyze the factors that would go into valuing a royalty stream identified for sale and propose a concept to revalue a royalty stream identified for sale for incorporation in the oil and gas resources accounting standards.
August 17-18, 2005
A representative from the Energy Information Administration (EIA) and a representative from the Department of the Interior (DOI) participated in the August 2005 Board meeting. Each participant gave introductory remarks, including what each thought the objective of the oil and gas project was, followed by discussions on questions the Board had identified in previous meetings. The participants recommended that the calculation for valuing the royalty interest the Federal government has in the proved reserves under its control be straightforward and manageable. Based on the discussions, staff will begin developing an Exposure Draft.
Issue Paper for August 2005June 22-23, 2005
Representatives from the Department of Interior and the Energy Information Administration will be present at the August 2005 Board meeting to discuss issues raised by the Board related to proved oil and gas reserves issues.
May 4-5, 2005
Representatives from the Department of Interior and the Energy Information Administration will be present at the June 2005 Board meeting to discuss issues raised by the Board related to proved oil and gas reserves issues.
March 2-3, 2005 Meeting:
At the March 2005 Board meeting, staff provided responses to a large number of issues raised by the Board at the December 2004 meeting. Responses to those issues were presented in the form of a Basis for Conclusions (BfC). The Board raised additional questions for staff follow-up. These included questions regarding the availability of information sufficient to support a net present value measure and detailed well-head prices to replace average well-head prices. Staff will continue developing the BfC with information that responds to the questions from Board members. Information pertaining to these questions can be found in the March Board meeting minutes when approved.
December 15-16, 2004 Meeting:
At the December 2004 Board meeting, staff provided responses to a large number of issues raised by the Board at the August meeting. Responses to those issues were presented in the form of a Basis for Conclusions (BfC). The Board raised additional questions and asked staff to research them. Staff will continue developing the BfC with information that responds to the questions from Board members.
Minutes: FASAB Meeting Minutes, December 2004
October 20-21, 2004 Meeting:
This project was not discussed at the October Board meeting.
August 25-26, 2004 Meeting:
At the August Board meeting, FASAB staff provided a preliminary exposure draft (ED) on reporting for oil and gas resources to the Board members. The objectives of the meeting were to get general approval from Board members on the proposals contained in the ED and to get feedback and suggestions from them in regard to all areas of the ED. The major proposal was to capitalize the estimated cash inflow from royalties based on the estimated quantity of proved oil and gas reserves from lands under Federal jurisdiction. Staff received a considerable number of comments from the Board. Staff will continue developing the ED based on the comments received from Board members.
Minutes: FASAB Meeting Minutes, August 2004
Deliberations prior to August 2004
The project initially began with the formation of a task force to conduct research. The task force produced a research report in June 2000 entitled Accounting for the Natural Resources of the Federal Government . (See http://www.fasab.gov/reports.htm to access the report.) In 2002, the Board resumed active consideration of the issues raised by the task force after a deferral to address other issues.
The Board decided to proceed with developing standards for oil and gas first due to the extensive literature available in other domains. The oil and gas project framework would be used in subsequent phases for the remaining types of natural resources (e.g., coal, timber, hard rock minerals). During 2003 and in earlier meetings in 2004, the concept of capitalizing the “production stage” anticipated revenue stream flowing to the Federal government (from royalty collections) was pursued, along with the development of various disclosures. However, the Board learned that the Energy Information Administration (EIA), Department of Energy, was to begin distinguishing between the quantity of the proved reserves from lands under Federal jurisdiction and the quantity of proved reserves from other lands in its reports. The EIA defines proved reserves as those volumes of oil and gas resources that geological and engineering data demonstrate with reasonable certainty to be recoverable (extracted and produced) in future years from known reservoirs under existing economic and operating conditions. As a result, the
Board is researching the concept of capitalizing the estimated cash inflow from royalties based on the estimated quantity of proved oil and gas reserves from lands under Federal jurisdiction with various supporting disclosures.
