EXAM 1 In Class Quizlet Creation

What is the petroleum industry?

The global industry involved in the exploration, extraction, refining, transporting, and marketing of petroleum products.

What are the major segments of the petroleum industry?

Upstream, Midstream, and Downstream.

What activities are included in the upstream sector?

Exploration and production (E&P) of crude oil and natural gas.

What is seismic surveying?

A technique used to locate oil and gas reserves underground using sound waves.

What is drilling in the petroleum industry?

The process of creating boreholes to extract oil and gas from underground reservoirs

What is the focus of the midstream sector?

Transportation, storage, and wholesale marketing of crude or refined petroleum products.

What infrastructure is used in midstream operations?

Pipelines, tankers, rail cars, and storage facilities

What is included in the downstream sector?

Refining crude oil, and marketing and distributing refined products to consumers

What are refined petroleum products?

Gasoline, diesel, jet fuel, heating oil, asphalt, and petrochemicals

What are petrochemicals?

Chemical products derived from petroleum used in the manufacture of plastics, fertilizers, and synthetic materials.

Name a few everyday products made from petrochemicals.

Plastics, cosmetics, clothing, detergents, and pharmaceuticals.

What are key challenges facing the petroleum industry?

Environmental concerns, fluctuating oil prices, political instability, and transitioning to renewable energy.

What is the energy transition?

The global shift from fossil fuels to cleaner, renewable sources of energy

What are common careers in the petroleum industry?

Accountants,Petroleum engineers, geologists, drill operators, refinery technicians, and environmental scientists.

What skills are essential for working in the petroleum industry?

Technical expertise, problem-solving, safety awareness, and adaptability.

What must be done first before oil can be sold?

Well fluids must be separated, treated, and measured

What standard condition and what must be determined for oil before it is sold?

API gravity at 60°F and BS&W content.

What is a run ticket?

A source document recording BS&W, gravity, temp, barrels sold, and standard condition conversions.

How are production costs treated under accounting?

Expensed as incurred, according to Regulation S-X 4-10

Production costs include what type of expenses

Lifting, gathering, treating, field processing, storage, labor, repairs, supplies, property and severance tax

How is oil in storage accounted for?

Inventory

What is LCM valuation?

Lower of cost or market; inventories are valued at the lower of historical cost or net realizable value.

Give an example of a directly attributable cost.

Repairs or Direct Labor to a specific well

Name two allocation bases for shared costs.

Number of barrels produced, number of wells , and direct labor hours.

What percentage might employee benefits be estimated at compared to direct labor?

45%

What are tubular goods and how are they accounted for?

Casing and tubing; capitalized initially, repairs are expensed.

What is a severance tax?

A production tax based on sales price or quantity produced.

What is a Joint Operating Agreement (JOA)?

An agreement among multiple working interest owners where one party (operator) incurs costs and bills others. All relevant issues and topics are contained in the JOA

What factors are considered before completing a well?

Future revenue, cost of completion, reservoir size, pressure, permeability, etc.

Why is natural gas demand especially important?

Because gas is expensive and difficult to store

What does the payback method measure?

The time to recover the initial investment

Formula for accounting rate of return (ARR)?

ARR = Average annual income ÷ Project investment

Shortcoming of ARR?

Does not consider time value of money or use net cash flows.

What does NPV show?

If a project yields value over cost when cash flows are discounted at a required rate.

What is the IRR?

The discount rate that makes NPV = 0.

What does the profitability index (PI) measure?

PI measures the proportion of the present value of dollars returned to dollars invested

The internal rate of return is the ____________ that would generate an NPV of zero.

discount rate

What does the payback method use to rank projects?

how long the invested money will be at risk 

What are the four main types of costs in oil & gas accounting?

Acquisition, Exploration, Development, and Production costs.

What are Acquisition Costs?

Costs to acquire property/lease rights to explore, drill, and produce oil and gas

What are Exploration Costs?

Costs to determine if hydrocarbon reservoirs exist, including geological, seismic, and drilling.

What are Development Costs?

Costs for preparing proven reserves for production, like wells and facilities.

What are Production Costs?

Costs for lifting, treating, and storing hydrocarbons.

What are the two primary methods for accounting in the oil & gas industry?

Successful Efforts Method and Full Cost Method.

What is the Successful Efforts Method?

Only successful exploration costs are capitalized; unsuccessful ones are expensed.

What is the Full Cost Method?

All exploration costs are capitalized, regardless of outcome.

Which method capitalizes costs by property or field?

Successful Efforts Method

Which method uses country-wide cost pools for amortization?

Full Cost Method

How are dry-hole costs treated under Successful Efforts?

Expensed if unsuccessful. Usually shown as exploration costs

How are dry-hole costs treated under Full Cost?

capitalized

What happens to unproved property under both methods when reserves are proven?

Transferred to proved property account.

What does the Full Cost Method do with all acquisition, exploration, and development costs?

Capitalizes them in one cost pool.

What does COPAS stand for?

Council of Petroleum Accountants Societies.

What is a JOA?

Joint Operating Agreement for shared oil & gas assets.

What is a unitization agreement?

Agreement to share production from a reservoir across lease blocks.

What is an imbalance in oil & gas?

Discrepancy between gas/oil delivered and received.

What does a revenue audit do?

Checks if operators are paying proper royalties.

What is covered under Accounting Guidelines in COPAS?

cover topics such as accounting for unitizations, imbalances and conducting revenue audits and provide advice regarding these specialized oil & gas topics.

What are three types of imbalances?

Producer and Producer. When a producer sells or uses a volume of natural gas in excess of its gross working interest.
Pipeline and Pipeline. When a pipeline receives a volume of natural gas and redelivers a larger or smaller volume of natural gas under the terms of a transportation agreement.
Producer and Pipeline. When a producer delivers a volume of natural gas that is larger or smaller than the volume of natural gas that the pipeline redelivers for the producer's account to another party.

How is a lease acquisition cost paid in cash recorded on day one 1 under Full Cost?

Unproved property (acquisition) … x

              Cash …x

How is a dry-hole cost recorded under Full Cost?

Exploration Capital
Cash.

What’s the treatment of successful exploratory wells under Full Cost?

Debit Wells and Equipment; Credit Cash.

How is a lease acquisition cost paid in cash recorded on day one 1 under Successful Efforts?

Debit Unproved Property; Credit Cash

How is a dry-hole cost recorded under Successful Efforts?

Debit Exploration expense; Credit Cash.

What’s the treatment of successful exploratory wells under Successful Efforts?

Debit Wells and Equipment; Credit Cash.