Accounting of petroleum companies: the abandonment cost

Abstract

Due to the characteristics of the petroleum companies, the accounting information system for this industry presents accounting particularitities that are directly related to the activities of oil exploration and production (E&P). The objective of this study is to investigate the theoretical and normative basis of the accounting in the petroleum sector, focusing on the aspects related to the cost of the abandonment of wells, which contributes to present the accounting information with a higher level of disclosure. For that purpose, an exploratory-comparative study of the oil and gas accounting norms was developed. In fact, the abandonment cost (the act of plugging the well and taking it off of service or activity, of reverting, alienating or removing any installation constructed in it) must be considered as a part of the capitalized costs of the assets (wells, equipment and installations), having as a counterpart, in the liabilities, the value corresponding to the future obligation of the dismantling, removal and restoration. The results indicate the existence of inconsistencies and the absence of clearer determinations in the accounting norms related to the petroleum industry, thus partly affecting the quality of the information being disclosed by the companies of this sector.

Key words: cost of abandonment, E&P, oil and gas accounting, SFAS 143.