Upstream Petroleum Contracts Accounting & Auditing Policies and Procedures

What are the Goals?

At the end of this training course, you will learn to:

• Gain a full understanding of the different types of the Upstream Petroleum Contracts
• Understand the main contractual terms and their differences between the various types of contracts from PSA, Service contracts and others
• Be aware of the approaches to negotiation of these contracts
• Incorporate the best terms into these Upstream Petroleum Contracts
• Develop an understanding of the accounting and auditing standards, policies and practices used by Upstream Petroleum companies
• Improve relevance and reliability of financial reports to better meet the needs of users
• Review and use publicly available information for benchmarking the business performance
• Understand the role and function of an Internal Audit Department
• Understand audit risk and efficiently plan, control and record an audit assignment

Who is this Training Course for?

This training course is appropriate to a wide range of professionals but will greatly benefit:

• Senior contract negotiators and managers
• Legal managers, legal counsel
• Commercial and business managers
• Contracts administrators, and managers
• Commercial, financial and insurance professionals
• Project and General Management personnel
• Corporate Accountants, Financial Controllers, Treasury Officers, Management Accountants
• Finance Staff in General Accounting, Payables, Receivables, Inventory, Fixed Assets, etc.
• Joint Venture Accountants and Auditors
• External, Financial and Internal Auditors
• Government Regulators and Auditors
• Financial and Investment Analysts

Daily Agenda

Module 1: Upstream Petroleum Contracts

Introduction and Overview of Upstream Petroleum Contracts

• Brief overview of the O&G industry
• Oil and gas terminology
• The legal framework to Upstream Contracts
• Introduction to contract formation
• Key oil and gas terminology
• Oil and gas industry structure
• Relationship between different players in the oil and gas industry
• Phases of the oil and gas industry
• Oil and gas contract fundamentals and legal principles
• Territorial water, continental shelf and United Nations Convention on the Law of the Sea (UNCLOS)

Contracting in the Upstream Sector: Ownership and Licensing

• Ownership and exploitation of reserves
• The ABCs of Petroleum Contracts: License-Concession Agreements, Joint Ventures, and Production-sharing Agreements
• Characteristics of upstream contracts
• Commercial realities of the oil and gas business
• Agreement with resource holders
• Ownership of oil and gas
• Risk Service Contracts (RSCs)
• Grant of rights by resource holder
• Host country's legal and regulatory framework and fiscal regime; stabilization
• Role of host government
• Key Issues in international oil and gas contracts
• Negotiation framework and strategy; objectives of host countries/NOCs and IOCs
•  Host Government’s Role in Upstream (Exploration & Production (E&P)) Agreements
• Overview of upstream operations and E&P agreements (types and trends by region)
• Key differences between Production Sharing Contracts (PSCs), concessions, service contracts and JV contracts
• Role of Host Government in Upstream Contracts

Production sharing contracts (PSC) & Joint Operating Agreements (JOA)

• Commercial Terms in Licensing and Concession Agreements
• Fiscal Arrangements, License Fees
• Five Key Financial Aspects to a PSC:

1. Royalty, The R factor
2. Cost Oil
3. Profit Oil
4. Taxation
5. Bonuses, Penalties

• What is a Joint Operating Agreement (JOA)?
• Nature, Aim and Functions of a Joint Venture
• Government Approval
• Key Areas of the JOA
• Purpose and Scope: Participating Interests

Service Contracts, Farm-In and Farm-Out and Unitization - Risk bearing and Non- Risk Bearing Service Contracts

• Participation Agreements (Farm-in and Farm-out)
• Agreements for Farm-ins and Farm-outs
• Nature of the Farm-out
• Subject Matter of the Farm-out
• Interest Assigned and Reserved
• Assignment of Interest
• Unitization and Unit Operating Agreements (UUOAs)
• What is unitization?
• Unitization in Practice
• Government Approval
• Transboundary Unitization

Negotiating Production Sharing Contracts 

• Government Take
• Production Share and Cost Recovery
• Local Content
• Force Majeure
• Dispute Resolution
• Stabilization and Renegotiation Provisions

Negotiation Simulation Exercise

• Negotiation a PSA with a Government Entity
• Objective: The objective is to establish what can be achieved in the meeting, what preparation is needed for it and what strategy should be adopted and then to pursue this strategy
• Feedback Session

Negotiation of Oil and Gas Disputes

• Importance of Negotiation in Oil and Gas Business
• Disadvantages of Competitive or Positional Negotiation
• Principled Negotiation between the Parties to Achieve Best Results

Module 2: Upstream Petroleum Accounting

Major Accounting & Auditing Issues in the Upstream Petroleum Sector

• The latest Accounting & Auditing Issues facing the sector
• The impact of commodity prices, currency & interest rate fluctuations and political and environmental developments.
• The impact of financial and accounting issues on Strategic Development and Growth within the sector
• The Annual Reports & Financial Statements of leading international Petroleum companies
• An Overview of IFRS in relation to Upstream Oil & Gas Accounting
• The Role of Auditing

Accounting for Revenue & Costs in the Upstream Petroleum Sector 

• Revenue Recognition & IFRS 15: Revenue from Contracts with Customers
• Costs in Acquisition, Exploration, Development and Production
• IFRS 6: Exploration for and Evaluation of Mineral Assets
• Accounting Approaches - The "Successful Efforts" (SE) Method or the "Full Cost" (FC) Method
• Break Even Oil, Cost Oil & Profit Oil
• Evaluating Profitability of leading international Oil & Gas companies

Accounting for Assets in the Upstream Petroleum Sector 

• Reserves & Resources
• IAS 16: Property, Plant and Equipment
• Depletion, Depreciation & Amortisation (“DD&A”)
• IAS 36: Impairment of Assets
• IAS 37 – 39 : Provisions, Contingent Liabilities and Contingent Assets; Intangible Assets and Financial Instruments
• Evaluating the Assets & Reserves of leading international Petroleum companies

Creative Accounting, Corporate Governance & Auditing

• Creative Accounting
• Corporate Governance
• Published Financial Statements
• The Role of the Board & Audit Committee
• External Auditing - reporting to investors in the Oil & Gas industry
• Internal Auditing - Defining and Developing the Internal Audit Process

The Internal Audit Function  

• Establishing the Roles & Staff within the Internal Audit Dept.
• The Various Types of Audits
• Planning & Commencing Internal Audit Examinations
• Controls & Substantive Tests
• Communicating Audit Findings
• The Audit Exit Conference Meeting & Post-Audit Reviews