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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II ACCOUNTING TREATMENTS OF EQUITIES OF MINING AREAS CHAPTER III ACCOUNTING TREATMENTS OF OIL AND GAS EXPLORATION CHAPTER IV ACCOUNTING TREATMENTS OF OIL AND GAS DEVELOPMENT CHAPTER V ACCOUNTING TREATMENTS FOR THE OIL AND GAS PRODUCTION CHAPTER VI DISCLOSURE CHAPTER I GENERAL PROVISIONS Article 1. For the purpose of regulating the accounting treatments of the exploitation of petroleum and natural gas (hereinafter referred to as oil and gas), as well as the disclosure of relevant information, these Standards are formulated in accordance with Accounting Standards for Enterprises-Basic Standards. Article 2. The exploitation of oil and gas includes the stages of obtainment of rights and interests related to mining areas, and exploration, development and production of oil and gas. Article 3. The accounting treatments of the storage, centralized transport, processing, distribution of oil and gas other than the exploitation of oil and gas shall be governed by other relevant accounting standards. CHAPTER II ACCOUNTING TREATMENTS OF EQUITIES OF MINING AREAS Article 4. The rights and interests related to mining areas refers to the rights obtained by enterprises to explore, develop and produce oil and gas in mining areas. The rights and interests related to mining areas are classified into rights and interests relating to proved and unproved mining areas. A proved mining area refers to a mining area in which an economically exploitable reserve has been proved upon exploration. A unproved mining area refers to a mining area in which no economically exploitable reserve has been proved yet. The term "economically exploitable reserve" refers to the amount of oil and gas which can, on the basis of the geological and engineering analyses, be reasonably determined and be exploited from a known oil and gas reserve under the current technological and economic conditions. Article 5. The costs of obtaining the rights and interests related to a mining area shall be capitalized when they are incurred. An enterprise shall conduct an initial measurement for the rights and interests related to a mining area at the costs of obtainment: (1) The cost incurred by the obtainment of the rights and interests related to a mining area includes the exploration right use fee, the mining right use fee, the disbursements for land or sea area use right, commissions, and other disbursements directly attributable to applying for obtainment of the rights and interests related to the mining area; (2) The cost incurred by the obtainment of the rights and interests related to a mining area by way of purchase includes the purchase price, commissions, and other disbursements directly attributable to the obtainment of the rights and interests related to the mining area. After the obtainment of the rights and interests related to a mining area, the exploration right use fee, mining right use fee, rent and other disbursements for maintaining the rights and interests of the mining area shall be recorded in the profits and losses of the current period. Article 6. An enterprise shall calculate the depletion of the rights and interest related to proved mining areas through the output method or the straight-line method. If it adopts the output method, it may calculate the depletion amount on the basis of each single mining area, or on the basis of a group of adjacent mining areas with identical or similar geological structure features or deposit layer conditions. The calculation formula is given as below: The depletion amount of the rights and interests related to the proved mining areas = the carrying amount of the proved mining areas x the depletion rate of the rights and interests related to the proved mining areas The depletion rate of the rights and interests related to the proved mining areas = the output of the proved mining areas in the current period / (the economically exploitable reserve of the proved mining areas at the end of the period + the output of the proved mining areas of the current period) Article 7. For the impairment of the rights and interests related to a mining area, an enterprise shall recognize the impairment losses in light of the following different circumstances, respectively: (1) It shall treat the impairment of rights and interests related to the proved mining areas according to the Accounting Standards for Enterprises No. 8-Asset Impairment; and (2) It shall perform at least one impairment test on the rights and interests related to the unproved mining areas every year. If the amount of costs incurred by the obtainment of a single mining area is relatively huge, impairment tests shall be performed on the basis of a single mining area and the amount of impairment of the rights and interests related to the unproved mining area. If the amount of costs incurred by the obtainment of a single mining area is relatively small and if its geological structure features or deposit layer conditions are identical to or similar to those of other adjacent mining areas, a impairment tests may be performed on the basis of a group of mining areas consisting of several adjacent mining areas with identical or similar geological structure features or deposit layer conditions. If the fair value of the rights and interests related to the unproved mining areas is lower than the carrying amount thereof, the difference between them shall be recognized as an impairment loss and shall be recorded in the profits and losses of the current period. Once an impairment loss on the rights and interests related to the unproved mining areas has been recognized, it shall not be reversed. Article 8. Where an enterprise transfers the rights and interests of a mining area, it shall observe the following provisions: (1) If it transfers all the rights and interests related to a mining area, it shall record the difference between the transfer income and the carrying amount of the rights and interests related to the mining area in the profits and losses of the current period. If it transfers some of the rights and interests related to the mining area, it shall calculate and determine the carrying amount of the transferred portion of rights and interests related to the mining area on the basis of the proportion between the fair value of the transferred rights and interests and the fair value of the retained rights and interests, and shall record the difference between the transfer income and the carrying amount of the transferred rights and interests related to the mining area; (2) If it transfers all the rights and interests related to an unproved mining area, for which it makes a separate impairment provision, it shall record the difference between the transfer income and the carrying amount of the rights and interests related to the unproved mining area in the profits and losses of the current period. If it transfers some of the rights and interests related to an unproved mining area, for which it makes a separate impairment provision and if the transfer income is greater the carrying amount of the rights and interests of the mining area, it shall record the difference between them in the profits and losses of the current period. If the transfer income is less than the carrying amount of the rights and interests of the mining area, it shall offset the transfer income against the carrying amount of the rights and interests of the mining area without recognizing any profits and losses; (3) In the transfers of the rights and interests of any unproved mining areas for which any provision is made for impairment on the basis of a group of mining areas: 1. If the transfer income is greater the original carrying amount of the rights and interests of the mining areas, it shall record the difference between them in the profits and losses of the current period; 2. If the transfer income is less than the original carrying amount of the rights and interests of the mining area, it shall offset the transfer income against the carrying amount of the rights and interests of the mining areas without recognizing any profits and losses. When it transfers the residual rights and interests related to the final unproved mining area among the group of the mining areas, it shall record the difference between the transfer income and the carrying amount of the unproved mining area in the profits and incomes of the current period. Article 9. Where an unproved mining area (portfolio) is changed into an proved mining area (or groups of mining areas) because an economically exploitable reserve is discovered in such an unproved mining area (portfolio), the it shall be shifted into the rights and interests related to proved mining areas at its carrying amount. Article 10. Where an enterprise eventually abandons an unproved mining area because of its failure to discover any economically exploitable reserve therein, it shall write off its carrying amount of the rights and interests related to the unproved mining area at the time of abandonment in the profits and losses of the current period. It shall record the abandonment costs incurred due to the unfinished obligatory workload or other factors in the profits and losses of the current period. CHAPTER III ACCOUNTING TREATMENTS OF OIL AND GAS EXPLORATION Article 11. The expression "oil and gas exploration" refers to the geological investigations, geophysical prospecting, drilling activities and other relevant activities carried out for the purpose of identifying the exploration region or exploring the oil and gas reserve. Article 12. The disbursements for oil and gas exploration include the drilling exploration disbursements and the non-drilling exploration disbursements. The drilling exploration disbursements mainly include the disbursements incurred by the exploratory drilling in the exploration region, the drilling for detailed prospecting, the appraisal well, the data well and other activities. The non-drilling exploration disbursements mainly include the disbursements for geological investigation, geophysical exploration and other activities. Article 13. With regard to the drilling exploration disbursements, after a well is completed, if it is sure that an economically exploitable reserve is discovered in the well, the disbursements for drilling this well shall be carried over as cost of the well and relevant facilities. If it is sure that no economically exploitable reserve is discovered in the well, the result of the disbursements for drilling this well less the net salvage value shall be recorded in the profits and losses of the current period. If it is sure that an economically exploitable reserve is discovered in a section of the well, among the portion of drilling exploration disbursements for the effective section of the well, in which an economically exploitable reserve is discovered, shall be carried over as the cost of the well and relevant facilities. The accumulative drilling exploration disbursements for the ineffective section of the well shall be shifted to the profits and currents of the current period. Where it could prove whether or not an economically exploitable reserve is discovered in the well, the disbursements for drilling the well shall be temporarily capitalized within 1 year after it is completed. Article 14. If it is still impossible to make sure whether or not an economically exploitable reserve is discovered in a well when one year has lapsed since the completion of the well, if the following conditions are satisfied simultaneously, the capitalized disbursements for drilling the well shall continue to be capitalized for the time being, otherwise they shall be recorded in the profits and losses of the current period: (1) A sufficient reserve has been discovered in the well, but in order to make sure whether or not it is an economically exploitable reserve, it is necessary to carry out further exploration activities; and (2) Further exploration activities are being carried out or are about to be carried out under a specific plan. Where a new economically exploitable reserve is discovered in a well for which the drilling exploration disbursements have been expensed, no adjustment may be made to the expensed drilling exploration disbursements and the disbursements for re-drilling exploration and for the completion of the well shall be capitalized. Article 15. The non-drilling exploration disbursements shall, at the time of incurrence, be recorded in the profits and losses of the current period. CHAPTER IV ACCOUNTING TREATMENTS OF OIL AND GAS DEVELOPMENT Article 16. The term "oil development" refers to the activities such as the construction or renovation of wells and other relevant facilities for the purpose of acquiring the oil and gas of a proved mining area. Article 17. The disbursements incurred during the oil and gas development activities shall respectively be capitalized according to their purposes and be recognized as the cost of well and relevant facilities for the oil and gas development. The cost of well and relevant facilities for the oil and gas development mainly includes: (1) The pre-drilling preparation disbursements, including the pre-phase research, project geological investigation, project design, determination of location of the well, cleaning up the well site, building roads, and other activities; (2) The disbursements for the purchase of equipment of the well and for the construction of the well. The equipment of the well includes the casing pipes, oil pipes, oil pump equipment and well mouth devices, etc. The construction of the well includes the drilling and completion of the well; (3) The disbursements for the purchase and construction of systems for promoting the exploitation rate; and (4) The disbursements for the purchase and construction of centralized transport facilities, separation processing facilities, measurement equipment, storage facilities, various off-shore platforms, seabed and land cables, etc. within the mining area. Article 18. Within a proved mining area, the disbursements incurred during the process from the drilling to the current layer which has been proved shall be regarded as the disbursements for oil and gas. The disbursements incurred due to the continuous drilling till the unproved layer for the purpose of obtaining any new proved economically exploitable reserve shall be regarded as the drilling exploration disbursements, and be treated in accordance with Articles 13 and 14 of these Standards. CHAPTER V ACCOUNTING TREATMENTS FOR THE OIL AND GAS PRODUCTION Article 19. The expression "oil and gas production" refers to the activities such as extracting any oil and gas from the oil and gas deposit to the surface of the earth, gathering within the range of the mining area, transporting, processing, storing on the spot, as well as the management of the mining area. Article 20. The cost of oil and gas production includes the depletion of the rights and interests of the relevant mining area, the depletion of the wells and relevant facilities, the depreciation of the auxiliary equipment and facilities, as well as the operating expenses. The term "operating expenses" refers to the direct and indirect incurred during the course of the oil and gas production and the management of the mining area. Article 21. An enterprise shall calculate the depletion of its wells and other relevant facilities by adopting the output method or the straight-line method. The wells and relevant facilities include the exploration wells in which any economically exploitable reserve is discovered, wells formed in the exploitation activities, and other various facilities directly related to the exploitation activities. If the output method is adopted for calculation of the depletion, the depletion amount shall be calculated on the basis of a single mining area or on the basis of a group of adjacent mining areas with identical or similar geological structure features or deposit layer conditions. The calculation formula is given as below: The depletion amount of the wells and other relevant facilities of the mining areas = the carrying amount of the wells and relevant facilities of the mining areas at the end of the period x the depletion rate of the wells and relevant facilities of the mining areas The depletion rate of the wells and relevant facilities of the mining areas = the output of the proved mining areas in the current period / (the economically exploitable reserves at the end of the period which has been proved and have been exploited + the output of the mining areas in the current period) The economically exploitable reserves at the end of the period which have been proved and have been exploited include the economically exploitable reserves which have been proved and have been put into full exploitation after the completion of the drilling of the net of development wells and the construction of the supporting facilities, and the exploitable reserves has duly increased after the facilities necessary for the technologies to promote the exploitation rate have been finished and after these facilities are put into operation. Article 22. The earthquake equipment, construction equipment, vehicles, maintenance workshops, warehouses, supply stations, communication equipment, office facilities and other auxiliary equipment and facilities shall be treated in pursuance of the Accounting Standards for Enterprises No. 4-Fixed Assets. Article 23. For an enterprise's obligation to dispose of any mining area it discards, if the enterprise satisfies the conditions for the recognition of the expected liabilities as prescribed in the Accounting Standards for Enterprises No. 13-Contingencies, it shall recognize this obligation as an expected liability and shall increase the corresponding carrying amount of the wells and relevant facilities. If the conditions for the recognition of the expected liabilities are not satisfied, the disbursements for the disassembly, removal and site cleaning at the time of discard shall be recorded in the profits and losses of the current period. The discard of a mining area refers to the termination of production of the last well of a mining area. Article 24. The impairment of the wells and relevant facilities, auxiliary equipment and facilities shall be treated in accordance with the Accounting Standards for Enterprises No. 8-Asset Impairment. CHAPTER VI DISCLOSURE Article 25. An enterprise shall, in its notes, disclose the following information relating to the oil and gas exploitation activities: (1) The data of the domestic and overseas oil and gas reserves in its possession at the beginning and at the end of the year; (2) The total amount of the disbursements incurred in the current period for the obtainment of the rights and interests of domestic and overseas mining areas, the oil and gas exploration as well as the oil and gas development; and (3) The original carrying amounts of the rights and interests of the proved mining areas, wells and relevant facilities, the accumulative depletion amounts and the accumulative amounts of the impairment provisions as well as their calculation methods. The original carrying amounts of the auxiliary equipment and facilities related to the oil and gas exploitation activities, the accumulative depreciation amounts and the accumulative amounts of the impairment provisions as well as their calculation methods. |
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