Estimating and disclosing decommisssioning, abandonment, and reclamation liability in the upstream oil and gas industry
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AbstractIn the past there has been little standardization for oil and gas companies regarding the reporting of site decommissioning, abandonment, and reclamation liabilities (asset retirement obligations), making comparison of financial data difficult. In response to many of the accounting scandals that have plagued the corporate world recently, new requirements are emerging in the environmental, legal, and financial fields. This Master's Degree Project investigates some of the current practices for addressing, accounting for, and analyzing environmental liabilities (asset retirement obligations) in five selected companies in order to determine how the new requirements are being met. Prior to discussing many of the reporting and financial estimates of asset retirement obligations, an overview of the nature of such liabilities and the regulatory/legal requirements in Canada and the U.S. are examined especially regarding their respective use in property transfers, mergers and acquisitions, and the practice of due diligence. Information was sought primarily through published literature, in depth interviews with selected oil and gas producers, regulatory/governmental agencies, and professional personal experience in the field. Of the companies examined, many commonalities were observed in the estimation and disclosure of site decommissioning, abandonment, and reclamation liabilities. Most companies are providing provisions for downhole abandonment, surface reclamation, access road reclamation, and both minor/major site decontamination. The processes involved for determining such costs are fairly uniform from company to company. All companies contain some sort of review process that addresses that accuracy of their liability estimates and they are all able to produce an asset list listing all relevant data to wellsites and facilities that are at various stages of the ARO process. There still appear to be significant differences between junior and senior companies in regard to data gathering. Small companies appear to be better able to capture costs as there are very few people involved in the process making financial tracking all aspects much simpler. Senior companies rely on numerous employees in different departments to supply analyzed data that eventually gets into a large database. The major issue is that there are so many people involved that getting all relevant data is almost impossible. Furthermore, although the disclosure requirements are being met, the accuracy of such data is uncertain for many larger companies due to the shear volume of sites and inability to inspect them all. Another marked difference among companies was how they were accounting for and reporting their share of joint-ventures. Some companies would report their working interest share _whereas others would only report Asset Retirement Obligations for which they are the lead operator. Based on the information received and professional experience, a list of recommendations is presented that attempts to address all stakeholders.
Bibliography: p. 99-104