Frank Agyemang discusses some of the pertinent accounting and finance issues facing the 21st century oil and gas executive The oil and gas industry typically requires extremely high levels of speculative investment with absolutely no guarantee of a successful return. It is characterised by lengthy time periods between the initial investment and returns, if any. The industry also attracts several regulatory accounting rules and standards. Managing oil and gas resources requires a deep knowledge and understanding of the drivers which impact on this globally important sector. It is vital that all organisations have knowledge of the accounting and finance implications of the future global economy where oil and gas resources are increasingly scarce and where the volatility of pricing of such resources is already a recurring feature in the global press. Oil and gas companies must comply with both general accounting standards and industry-specific accounting standards. It is essential that executives are familiar with these standards. Some oil and gas companies are engaged purely in an upstream activity or purely in a downstream activity or both. The upstream sector refers to the searching for and the recovery and production of crude oil and natural gas. The sector is also known as the exploration and production (E&P) sector. The upstream sector includes the searching for potential underground or underwater oil and gas fields, drilling of exploratory wells, and subsequently operating the wells that recover and bring the crude oil and/or raw natural gas to the surface. The downstream sector refers to the refining of crude oil, and the selling and distribution of natural gas and products derived from crude oil. Such products include liquefied petroleum gas (LPG), gasoline or petrol, jet fuel, diesel oil, other fuel oils, asphalt and petroleum coke. The downstream sector includes oil refineries, petrochemical plants, petroleum product distribution, retail outlets and natural gas distribution companies. The industry touches consumers through thousands of products such as petrol, diesel, jet fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides, pharmaceuticals, natural gas and propane. The accounting issues applicable to these sectors differ, depending on the activity being pursued by the firm. Upstream activities normally have more complex accounting issues than those of downstream activities. One of the difficulties for an upstream firm for example is valuation of reserves. Oil and gas reserves determine the true value of the firm. It is essential that executives not only understand the various categories of oil and gas reserves but also how this should be valued. Wrong valuation could send a bad signal to the market and attract the wrath of the authorities. Oil and gas activities are also usually characterised by complex contracts with diverse accounting implications. It is essential that executives understand these contractual issues and the accounting treatments relating to different contractual arrangements. There are also various petroleum tax regimes operating in different countries. The oil and gas executive must be familiar with these tax regimes and be in a position to strategically manage them to create value for the firm. The oil and gas executive must also be familiar with the different phases in the company’s operations - pre-license prospecting; mineral right acquisition/contracting; exploration; and evaluation and appraisal. There accounting issues are different depending on the phase of operation. For example, decisions about cost sharing and whether to capitalise a particular cost or not depends on the phase of operation in which the cost is incurred. Some of the specific issues that need understanding are the recognition of revenue, valuation and disclosure of reserve information; accounting for production costs, full cost accounting, successful-efforts accounting, depreciation, depletion and amortisation methods, and accounting for international joint operations. Overall the oil and gas executive must be abreast with developments in financial accounting, contract accounting, tax accounting, and cost and management accounting issues pertaining to the industry. To address some of the foregoing issues and challenges in the sector, a five day seminar will be held from 9th to 13th August at GIMPA, which will be resourced by an international team of experts. Email: info@accentglobal.co.uk