PSAK 29 For Oil and Gas in English

Unofficial Translation STATEMENT OF FINANCIAL ACCOUNTING STANDARDS SFAS No.
29
INDONESIAN INSTITUTE OF ACCOUNTANTS ACCOUNTING FOR OIL AND GAS INDUSTRY
Accounting for Oil and Gas Industry
SFAS No. 29
SFAS No. 29
As part of the effort to transform the Indonesian Accounting Principles (PAI) into the Statement of Financial Accounting Standards (SFAS), PAI No.5, Special Accounting Standard for Oil and Gas, has been amended as necessary to become SFAS No.29, Accounting for Oil and Gas Industry. This Statement was adopted by a meeting of the Indonesian Accounting Principles Committee on August 24, 1994 and was ratified by the National Council of the Indonesian Institute of Accountants on September 7, 1994. Compliance with the policies contained in this Statement is not obligatory in the case of immaterial items.
CONTENTS
Chapter: I. INTRODUCTION Characteristics of Accounting for the Oil and Gas Industry Scope and Implementation II. ACCOUNTING FOR EXPLORATION Definition of Exploration Description of Exploration Activities Types of Exploration Expenses Accounting Treatment for Exploration Expenses III. ACCOUNTING FOR DEVELOPMENT Definition of Development Description of Development Activities Types of Development Expenses Accounting Treatment for Development Expenses IV. ACCOUNTING FOR PRODUCTION Definition of Production Description of Production Activities Types of Production Expenses Accounting Treatment for Production Expenses V. ACCOUNTING FOR PROCESSING Definition of Processing Description of Processing Activities Types of Processing Expenses Acquisition Cost of Processing Fixed Assets Accounting Treatment for Processing Expenses and Acquisition Cost of Processing Fixed Assets VI. ACCOUNTING FOR TRANSPORTATION Definition of Transportation
Jakarta, September 7, 1994 National Council The Indonesian Institute of Accountants Indonesian Accounting Principles Committee HansKartikahadi Jusuf Halim Hein G. Surjaatmadja Katjep K. Abdoelkadir Wahjudi Prakarsa Jan Hoesada M. Ashadi Mirza Mochtar IPG Ary Suta Sobo Sitorus Timoty Marnandus Mirawati Soedjono Chairperson Secretary Member Member Member Member Member Member Member Member Member Member
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Description of Transportation Activities Types of Transportation Expenses Acquisition Cost of Transportation Fixed Assets Accounting Treatment for Transportation Expenses Acquisition Cost Of Transportation Fixed Assets VII. ACCOUNTING FOR MARKETING Definition of Marketing Description of Marketing Activities Types of Marketing Expenses Acquisition Cost of Marketing Fixed Assets Accounting Treatment for Marketing Expenses and Acquisition Cost of Marketing Fixed Assets VIII. ACCOUNTING FOR OTHER AREAS A. Accounting for Specific Ports B. Accounting for Telecommunication C. Accounting for Technical Assistance Contract D. Accounting for Unitization E. Accounting for Secondary Recovery Contract F. Accounting for Joint Operations EFFECTIVE DATE Appendix 1: History of Oil Industry in Indonesia Appendix 2: PERTAMINA Appendix 3: Accounting Method for Oil and Gas Industry Glossary of Terms
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CHAPTER I INTRODUCTION 1. Characteristic of Accounting for the Oil and Gas Industry
incurred should be deferred and capitalized as a part of oil reserves found. Another opinion exists that costs incurred in oil and gas exploration should be matched with the results of exploring for reserves. Costs should be capitalized if reserves are proven to contain oil and gas, otherwise costs should be expensed if reserves or results of exploration are found to be dry. 2. Scope and Implementation This Statement was compiled based on the nature and characteristics of the oil business in Indonesia and is guided by the basic of financial accounting concepts stated in the Financial Accounting Standard and by the prevailing regulations. This Statement is meant to be used as guidance in the presentation of financial statements for external users. In this regard, it is assumed that both the preparers and users of financial statements need the same standard in preparing and presenting financial statements of an enterprise. This Statement includes accounting standards for exploration, development, production, processing, transportation, marketing activities, and other activities in oil and gas industry. For oil and gas contractors, who work on contract with the government: or PERTAMINA, this Statement can be used as long as the accounting treatment is not specifically regulated by a specific contract. In the case that a contract specifically addresses the accounting treatment of certain transactions, the contract agreement takes precedent.
a. The oil and gas industry includes the exploration, development, production of oil and gas reserves, refinery activities, tanker transportation, and marketing of oil, gas and other processed products. Oil and gas enterprises can take form of an integrated business that perform activities in exploration, development, production, refinery, tanker transportation and marketing in a single business entity, or they can be independent entities. b. The nature and characteristics of the oil and gas industry are different from those of other industries. Oil and gas exploration is a risky business similar to a gamble. Even though it has been thoroughly planned, no guarantee exists that the costly activity will result in the discovery of oil reserves. The oil and gas industry is a highly technical, capital intensive and high risk business that requires professional management. Activities involved in a refinery are largely similar to those found in any other processing industry, but they differ significantly from activities in an exploration, while tanker transportation constitutes a specific part of the shipping industry. c. In the oil industry, there is a possibility for enterprises to cooperate to manage oil reserves, whether in the form of a joint capital or joint cooperation. Those cooperation can be conducted through technical support contract, joint operation agreement, joint operation body, unititation, and secondary recovery, which can result in jointly ownership. d. Due to its nature and characteristics, there are some specific accounting treatment for this industry which differ from those of other industries, such as: The uncertainty of exploration can lead to some alternatives in recognizing dry hole costs; There is an opinion that cost recognition should be matched with activities until oil and gas reserves in a country are found. Accordingly, all costs
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CHAPTER II ACCOUNTING FOR EXPLORATION 1. Definition of Exploration
c d e
Determine the potential and the maturity of hydrocarbon stone. Determine oil and gas traps, both structural and stratigraphical. Verify the possible existence of reserves and types of oil and gas contained inside. A geological survey is performed in following steps:
Exploration or survey activities are defined as efforts in searching and finding oil and gas reserves in areas which have not been proven to contain oil and gas, including the following activities: Obtaining a license to start the exploration activity in specific areas.
Preparation, including preparing work program and acquiring licenses. Data gathering through SLAR or taking samples directly from the field. Performing field geological and geophysical survey activities. Processing, analyzing, interpreting, evaluating and reevaluating the data. Interpreting data obtained from the survey. Drilling a well, including stratigraphy test well in areas which have not been proven to contain reserves. Obtaining and building fixed assets related to the above activities. Determine the shape of the underground stone layer. Using services needed in relation with the above activities. Determine the shape of oil and gas traps and their depth. 2. Description of Exploration Activities Determine the drilling point at drilling location. Exploration activities include surveys on topographical, geological, geophysical drilling of exploration wells, and stratigraphical test wells. A topographical survey is an activity to measure the surface of land to draw maps of a specific area and to study the nature of the land. A geological survey includes site looking air radar (SLAR), field geological and geochemical activities conducted to: a b Determine whether there is a hollow sediment. c Determine the types of layers; thickness and ages of stones covered in the survey areas. Processing, analyzing, interpreting, evaluating and reevaluating data. a A geophysical survey is performed in following steps: Preparation, including preparing the work program and acquiring licenses. Field data gathering through air recording that consists of aerogravity and aeromagnetic, and field recording that consists of magnetic and seismic gravitation. A geophysical survey includes gravitation, magnetic and seismic survey activities performed in order to: Understand the regional structure pattern.
Drilling of exploration wells consists of wild cat drilling and delineation wells. The drilling is performed to determine the detailed stratigraphic data and to
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determine whether there are oil and gas reserves of economical value. Drilling exploration is performed according in following steps: a Preparation, including preparing work program, acquiring licenses and land clearing. Procurement of heavy transportation equipment. Construction of roads and preparation of drilling location. Procurement of drilling tools and facilities which consist of rig unit, mud logging unit, wire line logging unit, cementing unit, platform and base camp. Drilling operations that cover construction of wells, gathering of technical data that consists of geological and petrophysical data and continuous evaluation of data. Testing of stone layer based on the result of data evaluation. Finishing or closing of wells. Drilling of stratigraphical test wells consists of drilling activities based on geological survey results, testing of stones and expendable holes in connection with hydrocarbon exploration. The objective of drilling stratigraphical test well is to obtain information about certain geological conditions, generally this type of drilling is not meant to produce hydrocarbons. Types of Exploration Expenses While tangible costs in the drilling of exploration wells include: Christmas trees Well head ejection Tubing Pumping Sucks rods The costs of drilling stratigraphical test wells consist of unproven reserves drilling costs (exploratory type) and proven reserves areas (development type). These types of costs are similar to the types of costs of drilling exploration Geological survey costs consist of: SLAR costs Field geological costs Geochemical costs. Geophysical survey expenses consist of the following: Gravitation costs Magnetic costs Seismic costs. Exploration well drilling costs consist of intangible and tangible costs. Intangible costs include: Preparation costs (land clearing, construction of road and preparation of location) Drilling costs Drilling bit costs Mud costs Casing costs Cement costs Logging costs Testing and finishing costs Salary costs Costs of transporting drilling tools Other transportation costs Camp costs Other costs.
b c d
f g
3.
Exploration costs consist of topographical, geological and geophysical survey expenses, exploration well drilling and stratigraphical test well drilling survey costs. Topographical survey costs consist of: Cost of measuring land Cost of mapping land Cost of analyzing land.
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wells as detailed above. CHAPTER III 4. Accounting Treatment for Exploration Expenses ACCOUNTING FOR DEVELOPMENT Exploration activities include the survey on topography, geology and geophysical conditions, drilling of exploration wells and stratigraphical test wells. Exploration costs can be accounted for using either the full cost or successful efforts method. According to the full cost method, all costs are capitalized as part of the oil and gas assets of a country as a cost center. According to the successful efforts method, all exploration costs other than allocated to exploration wells (including stratigraphical exploration well type) which have proven reserves, are treated as expenses in the respective accounting period. Moreover, except for land with economic value, costs of drilling exploration wells, either intangible or tangible, are capitalized when the proven reserves are found, or treated as expenses if proven reserves are not found. 1 Definition of Development
Development activities are defined as all activities performed in order to develop proven oil and gas reserves until they are ready for production. Development activities include the following: a Procurement of equipment and inventory. b Mining, distribution, collection and storage of oil and gas. c Procurement of secondary recovery system. 2 Description of Development Activities The development activities can be outlined as follows. Procurement of equipment and inventory includes: Procurement of heavy equipment transportation. Construction of a road and drilling location. Procurement of drilling equipment and facilities such as rig unit, mud logging unit, wireline logging unit, cementing unit, platform and base camp. Oil and gas mining activities includes: Survey of a well location to determine the drilling point. Construction of the passage to the drilling well location. Preparation of land for drilling location. Rearrangement of public roads, gas channels, water pipes, electricity and telephone networks needed for development of proven reserve. Drilling and completion of development wells, stratigraphical test wells and supporting wells and furnishing those wells with required equipment. Oil and gas distribution activities that includes: Preparation of distribution pipe network, manifold, separator, treater and heater. Preparation of recycling facilities and natural gas processing facilities.
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Oil and gas accumulation and distribution activities including preparation of measuring-tools, reserve tanks and waste facilities. Procurement activities of the secondary recovery system. 3 Type of Development Expenses
Drilling costs which are calculated based on the well depth or daily rate. Engineering service costs during the drilling activities performed by engineers, geologists and fluid engineers. Other costs. Well completion costs consist of: Lagging costs, drill stern test and other test costs, such as core mineral test and well wall sample costs. Down-hole casing, cementing, suction crack and souring costs. Transportation and underground equipment installation costs. Leased equipment costs for storing the oil during the test. Other costs. Post-completion well costs consist of: Costs of returning drilling equipment (owned by the Enterprise) from the drilling location to the warehouse. Costs of rehabilitating location around the well. Environmental improvement costs. Costs of cementing and installing up-wrapper. Costs of transporting casing and tubing pipes from the warehouse. Down-hole casing costs, including electrical logging. Costs of injecting water, steam and gas for lifting oil from the production zone. Costs of closing wells. Costs of abandoning an unproductive well (dry hole). Other costs. Tangible development well drilling costs cover all tangible asset costs including underground tubing, such as: Tubular goods. Casing heads. Pumps, reservoir tanks. Distribution pipes. Separator. Production equipment and facilities. Other facilities and equipment.
Development costs consist of costs of procuring equipment and facilities for extracting, distributing, gathering and storing of oil and gas, and costs of procuring a secondary recovery system. Based on their nature, costs related to the development of oil and gas wells consist of well drilling costs, tangible as well as intangible. Intangible development well drilling costs include expenditures for drilling development wells, such as salary of the rig operator, fuel and repairs. Those expenditures have no salvage value and are incurred during the drilling from the preparation of wells up to the production of oil or gas. Moreover, intangible costs in the drilling of development wells are classified in accordance with the completion stages: pre-drilling costs, drilling in process costs, well completion costs and post-completion well costs. Pre-drilling costs consist of: Geological and geophysical survey costs to determine drilling location. Costs of cleaning-up the well location, digging-up drilling waste storage and constructing roads. Costs of constructing foundation for drilling equipment (stones and others) and constructing bridge, Costs of installing water pipe network and installing water and fuel tanks. Costs of transferring and building of drilling equipment. Costs of constructing racks to store drilling pipes and other pipes used in drilling process. Other costs. Drilling in-process costs consist of: Costs of procuring water, fuel and other materials needed for well drilling. Costs of planting anchor for stabilizing drilling equipment.
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Secondary recovery system costs. 4. Accounting Treatment for Development Expenses 1.
CHAPTER IV ACCOUNTING FOR PRODUCTION Definition of Production
Development activities include the procurement of equipment and facilities for extracting, distributing, accumulating and storing the oil and gas, and provision of repaired secondary recovery systems. Under either the full cost method or successful efforts method, all development costs are capitalized as a part of the oil and gas assets including well assets and equipments.
Production is defined as all activities performed to lift oil and gas from proven reserves to the land surface and to transport it to the collecting station which includes the following activities: a. Lifting oil and gas to the land surface. b. Separating oil, gas, and basic sediment and water. c. Transporting oil and gas from the land surface to the collecting station or collecting production center, and then to the distribution location. d. Putting crude oil into tanks. 2. Description of Production Activities
Production activities include lifting oil and gas to the land surface, separating oil, gas and basic sediment and water, transporting and collecting the oil at the production field and at a distribution location. a. Lifting activities relate to lifting oil and gas from proven reserves to the upper edge of the well. This activity can be performed through three steps of recovery: Primary recovery is performed through natural lifting, artificial lifting, gas lifting and suction by the pumping unit. Natural lifting occurs if the reserves contain water or high pressured gas with enough natural energy to lift the oil to the land surface through the hole of the well. If natural lifting is not strong enough to lift the oil to the land surface, artificial lifting will be used with the aid of gas lifting or a pumping unit. Secondary recovery is performed when the usage of primary recovery to lift oil and gas becomes less economical. At this stage, recovery is performed through induction of artificial power into the formation. The water flooding method is the most common method used. This method distributes high pressured water into injection wells to lift the oil to the
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surface. Tertiary recovery is performed using enhanced oil recovery methods which is achieved by building up pressure in the reserves through injection of chemicals or energy into the well to lift the oil to the surface, so that unproductive wells could become productive again; b The oil separation process involves the separation of gas and liquid crude oil, basic sediment and water through a dehydrator; The transportation process includes transporting oil from the well surface to a temporary reservoir, then to a separating installation, then to the reservoir at the production field and finally to the distribution location; The collection process includes: Collecting oil and gas from the well and storing them to the temporary reservoir before the separation process of oil, gas and BS&W (basic sediment & water) at the separation installation. Collecting oil from the separation installation to the collecting station and/or production collection center at the field. Generally, the production function is assumed to be complete when oil and gas lifted through the channel valves at the production collection center. Under physically or operationally unusual circumstances, the production function considered ended when the oil, gas or condensate is for the first time distributed to main pipes, transportation vehicles, a refinery or a sea terminal. 3. Types of Production Expenses b. Secondary recovery expenses that consist of expenses related to water flooding, gas injection, steam combustion, incite combustion and other expenses. Tertiary recovery costs.
c.
Collection expenses include expenses for transporting and delivering gas and crude oil from field storage to the main storage before being sold or transferred to a processing plant. These expenses consist of: a Reservoir tank expense b Heater station expenses c Oil & gas pipeline expenses d Production installation expenses e Other expenses. Separation expenses consist of: a Collecting installation expenses b Supporting installation expenses. Main transportation expenses are expenditures for maintenance and operation of main storage facilities and main pipeline that carries crude oil and gas to the loading or processing facilities. 4. Accounting Treatment for Production Expenses
Production expenses include lifting expenses, separation expenses, transportation and collection expenses. Lifting expenses include the following: a. Primary recovery expenses that consist of expenses related to draining (recovery) from the underground up to the surfaces (from under casing head to upper casing head).
Production activities include lifting oil and gas to the land surface, separation of the oil, gas and BS&W, and oil transportation at the production field and to a distribution location. All expenses related to production activities are treated as expenses when incurred.
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CHAPTER V ACCOUNTING FOR PROCESSING
The first process includes: Processing crude oil by using a distillation unit to produce fractions of gas, naphtha, kerosene, ADO, and long residue which meet required specifications. Recycling off-grade oil and slop products using a distillation unit to produce, among others, FO. Processing long residue from the results of a bottom crude oil distiller by using a vacuum unit to produce flashed gas oil and short residue which will then be processed during the work process. The second process includes:
1.
Definition of Processing
Oil and gas processing is defined as the processing of crude oil and natural gas into a product which consists of fuel and non-fuel products, and the processing of gas and non-fuel products into petrochemical products. Fuel products are Avigas, Avtur, Super, Premium, Kerosene, Automotive Diesel Oil (ADO), Industrial Diesel Oil (IDO), Fuel Oil (FO), etc. Non-fuel products are refinery products other than fuel, including Low Sulfur Waxy Residue (LSWR), Naphtha, Lubricant, Asphalt, etc. Petrochemical products are products that result from processing of gas and non-fuel products such as Purified Terephtalic Acid (PTA), Methanol, Polypropylene, Olefin, Paraxylene, etc. 2. Description of Processing Activities
Processing heavy gas oil using a cracking unit to produce other products such as oil and gas, kerosene and diesel. Increase octane content in oil and gas by using a reforming unit. Processing gas or light fractions that contain propane and butane into Liquified Petroleum Gas (LPG), processing butane and butylene, into Avigas and processing propylene into polypropylene. The other processes include: Processing flashed gas oil into wax material by using a wax plant.
Processing comprises all activities in the processing of crude oil and natural gas into fuel and non-fuel products, and processing gas and non-fuel products into petrochemical products. Such activities include: a Determining the types and amount of crude oil to be processed and oil products to be produced, taking into account the characteristics and capacity of the refinery, inventory and demand for the products. Processing crude oil and natural gas under a first process, second process, other processes and a treating unit process.
Processing flashed gas oil into lube base by using a lube plant Processing short residue into bitumen asphalt by using an asphalt plant
Processing short residue into coke by using a coker unit. Deleting/eliminating unexpected contamination in intermediate products that have fulfilled the required specification or in other oil products by using a treating unit. c Examining through a laboratory analysis, the types of products produced
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to ensure the quality meets the required specifications. d Distributing refined products through a pipeline to tankers or distribution tanks. Types of Processing Expenses
Paraxylene at the aromatic plant. Other supplementary plant expenses, such as drum plant, oxygen plant, etc. General processing expenses comprise: a Direct general expenses such as equipment rental, professional fees, direct labor, insurance, etc. b Indirect general expenses such as general insurance, fixed assets depreciation, taxes, overheads, processing expenses, etc. 4. Acquisition cost of Processing Fixed Assets
3.
Processing expenses comprise expenses incurred for processing crude oil and gas into fuel and non-fuel products and processing gas and non-fuel into petrochemical products, including the following: The first process expenses, comprise: Processing expenses for refining in a distillation unit. Processing expenses for re-refining in a redistillation unit. Processing expenses for vacuum refining in a vacuum unit. Repair and maintenance expenses for the units mentioned above. Utilities expenses such as steam, electricity, and water cooling. Refinery fuel and gas expenses. Receiving and storage expenses for crude oil and products. Laboratory expenses for testing crude oil and production. The second process expenses, comprise: Processing expenses for separating heavy oil in cracking unit. Expenses to increase octane content in oil and gas in reforming unit. Expenses for processing gas and light fraction at LPG plant and polypropylene plant. Repair and maintenance expenses for the above units and plants. Utilities expenses such as steam, electricity, and water cooling. Storage expenses. Laboratory expenses for product testing. The other processing expenses, comprise: Flashed gas oil at the wax plant. Flashed gas oil at the lube plant. Short residue at the asphalt plant. Short residue at the coker unit. Short residue at the treating unit. Natural gas at the methanol plant. Ethylene at the olefin plant.
Acquisition costs of Processing Fixed Assets (PFA), whether direct or indirect processing, comprise: a. b. c. d. e. f. g. h. i. 5. Acquisition costs of PFA related to the first process. Acquisition costs of PFA related to the second process. Acquisition costs of PFA related to other process. Acquisition costs of PFA related to processing facilities (storage, handling and blending facilities). Acquisition costs of PFA related to utilities and auxiliaries. Acquisition costs of PFA related to immovable general fixed assets. Acquisition costs of PFA related to transportation facilities. Acquisition costs of PFA related to office buildings, villas and houses. Acquisition costs of PFA related to movable general fixed assets. Accounting Treatment for Expenses and Acquisition Cost of Processing Fixed Assets
Processing activities include all activities in processing crude oil and gas into products which consist of fuel and non-fuel products and processing gas and non-fuel products into petrochemical products. Accounting Treatment for First Processing Expenses All expenses incurred in the first processing units are treated as processing operational expenses. These expenses are classified into three types of activities:
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Processing unit activities: Distillation expenses at the crude distiller, atmospheric distilling unit and topping unit. Redistillation expenses at the redistiller and rerun pipe still. Vacuum distillation expenses in the vacuum unit, vacuum pipe still and vacuum flash unit. Utility installation activities: Electric power installation expenses. Hot steam installation expenses. Water cooler installation expenses Other utilities installation expenses.
Maintenance activities Maintenance/ repair expenses. Utility expenses. Storage expenses, testing transportation expenses. Other utility expenses.
laboratory
expenses,
pipeline
Accounting Treatment for Other Processing Expenses All expenses incurred at the various units in other processing are treated as operational processing expenses. These expenses are classified into three types of activities: a Processing units activities: Expenses at wax plant, lube plant, asphalt plant, coker unit, etc. Treating unit expenses. Utility installation activities: Electric power installation expenses. Hot stem installation expenses. Water cooker installation expenses, etc. Other utilities installation expenses. Maintenance activities Expenses incurred in these activities include such as repair and maintenance expenses, utility expenses, storage expenses, testing laboratory expenses and product transportation expenses. Accounting Treatment for General Processing Expenses All general expenses incurred during processing activities, whether directly related to the processing activities or not, are treated as operational processing expenses which are allocated to the respective departments or unit activities. Accounting Treatment for Acquisition Costs of Processing Fixed Assets These expenditures represent capital expenditures in: Acquisition costs of PFA.
Maintenance activities: Include maintenance/repair expenses, utility expenses, storage expenses, testing laboratory expenses, transportation expenses, etc. Accounting Treatment for Second Processing Expenses All expenses incurred at various units in the second processing are treated as operational processing expenses. These expenses are classified into three activities: Processing unit activities: Cracking expenses at the thermal cracking unit, fluid catalytic cracking unit, hydrocracker and visebreaker. Reforming expenses at the thermal reforming unit and platformer. Expenses of units that process gas and light fraction, such as LPG plant and polypropylene plant. Natural gas fractionation unit expenses. Utility installation activities: Electric power installation expenses. Hot steam installation expenses. Water cooler installation expenses. Other utilities installation expenses.
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Expenditures for replacing parts of a PFA unit which increases the capacity. Present value of minimum lease payments related to capital leases. Interest costs of loans during the construction period and the loans which were incurred for project construction
ACCOUNTING FOR TRANSPORTATION 1. Definition of Transportation
Transportation is defined as the delivery of crude oil and oil products (including LNG & LPG) by ship or other floating means through sea and/or river directly from a loading port to an unloading port or through a floating tank facility. 2. Description of Transportation Activities
Transportation by ships or other floating means includes activities such as receiving, carrying and delivering of crude oil and products from a loading port to an unloading port by using the enterprise's own ship, leased ship or chartered ship. 3. Types of Transportation Expenses
Transportation expenses include expenses arising from activities related to receiving, carrying and delivering crude oil and products by ship or other floating transportation means, consisting of: Own Ship Operational Expenses, which consist of: Expenses related to the preparation of a ship's operations in order to ensure the ship is in good condition and ready to operate (running costs). These expenses cover: Ship maintenance service Ship personnel Provisions Ship equipment and supplies Running repairs Ship damages Ship communications Ship insurance Shipping operational expenses (operating costs), which cover expenses for: CHAPTER VI
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Port charges and clearance Potable water Shipping agent Bunker Bonus cargo tank cleaning Daily payment abroad Ship insurance Operational expenses of chartered ships, consist of: Ship rental expenses Ship operational expenses when they are charged to the lessee as stated in the contract. 4. Acquisition Cost of Transportation Fixed Assets
unloading port are treated as expenses while the operating expenses are billed to the ship owner. Bare-boat charter The costs of renting a ship, excluding its crew, and its operating expenses for a stated period are treated as expenses Accounting treatment for the acquisition cost of transportation fixed assets are as follows: A tanker and/or a light ship that is self constructed and/or acquired from direct purchasing is capitalized at acquisition cost, accounted as one whole unit, including its equipment in a ready for use condition; A tanker acquired under capital lease is capitalized based on the present value of all installments paid during the contract period; Additional expenditures in obtaining additional shipping equipment are capitalized as a part of the initial total ship value; Expenditures related to changes in economic useful life and ship capacity are capitalized.
Acquisition cost of fixed assets used to transporting crude oil, oil products and others is acquired through self-construction, direct purchasing and capital lease, which includes the acquisition of a tanker and a light ship. 5. Amounting Treatment for Transportation Expenses and Acquisition Cost of Transportation Fixed Assets
The transportation of crude oil and other products involves the activities in receiving, carrying and delivering crude oil and other products by ship or other floating means. Accounting treatment for such activities is as follows: Expenses from the operation of an owned ship are treated as direct expenses during the ship's operation period; Accounting treatment for chartered ships follows the agreement and commitment between the charter party, including: Time charter Ship rental expenses and operating expenses for a stated charter period are treated as expense.
Voyage charter Rental expenses for transporting cargo from a loading port to an
CHAPTER VII
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ACCOUNTING FOR MARKETING 1. Definition of Marketing c Marketing is defined as all activities that relate to the sale of crude oil, natural gas and other products to consumers or suppliers inside and outside the country. 2. Description of Marketing Activities
Quality control of exported crude oil and refinery products. Preparing and completing invoices. Activities in providing and selling gas, covering: Market analysis. Planning for sale of products and for own use. Procurement activities, including those relating to mixing, packaging and distributing the products. Sales operations. Training, quality control, development of distribution channels and promotion. Maintenance of sales facilities. 3. Types of Marketing Expenses
Marketing activities involves local procurement and export of crude oil, natural gas and other products. a Activities in providing and selling; oil and non-oil products to local consumers and suppliers, covering: Market analysis Planning for sale of products and for own use Procurement activities, including those relating to mixing, packaging and distributing the products Sales operations Training, quality control, development of selling channels and promotion Maintenance of sales facilities. b Activities in providing and selling crude oil and products for export, covering: Market analysis. Planning for supplying and marketing crude oil and products for export. Planning for fulfilling customer's or potential customers needs for crude oil and refinery products. Development of market share in crude oil and refinery products. Determining price/allowance/premium and administration costs. Preparing and completing sales contracts on crude oil and refinery products. Scheduling the export shipment of crude oil and refinery products and carrying out the scheduled activities. Notifying buyers about shipment details.
Based on product type and location, marketing expenses can be classified as follows: a Expenses for marketing of refinery products in local markets covering: Procurement and distribution expenses Manufacturing and packaging expenses Marketing facility expenses Promotion expenses Training expenses Technical service expenses Quality control expenses R & D expenses General expenses. b Expenses for marketing of gas in local market covering: Pumping house, compressor, booster expenses Heater station expenses Gas pipe expenses Telemetering expenses Other expenses.
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Marketing expenses of exported crude oil and refinery products cover general expenses incurred to boost marketing of oil and refinery products, closing contracts and other administration expenses. Acquisition Cost of Marketing Fixed Assets
Accounting for other areas consists of: Accounting for Specific Ports Accounting for Telecommunications Accounting for Technical Assistance Contract Accounting for Unitization Accounting for Secondary Recovery Accounting for Joint Operations.
4.
Marketing fixed assets are local marketing facilities. These costs cover the acquisition cost of. a. b. c. d. e. f. g. h. 5. Installation, agents, logistic centers (DPPU), gas stations (SPBU) Gas and product pipes Land transportation facilities Water transportation facilities Drums and LPG tubes factory Pumping house, booster, compressor Heater station Telemetering. Accounting Treatment for Marketing Expenses and Acquisition Cost of Marketing Fixed Assets
ACCOUNTING FOR SPECIFIC PORTS Definition of Specific Port A specific port is a port owned and operated by PERTAMINA to support oil and gas operations. Description of Specific Port Activities Activities of a specific port include managing the port, organizing port facilities and protecting the environment. Managing the port includes: Providing docking facilities Planning, conducting and controlling the development of the port, and conducting repair and maintenance of the port Conducting hydrographical survey to detect the depth line Performing soil test in constructing port facilities and environment protection Organizing and processing port licenses such as guiding license, sailing license, etc.
The accounting treatment for expenses incurred to market the products inside and outside the country and the acquisition costs of fixed asset is as follows: a All local marketing expenses of the products ate treated as operational marketing expenses whereas manufacturing expenses and packaging expenses are included in the cost of goods sold; b All local marketing expenses of gas are treated as marketing operational expenses; All marketing expenses of crude oil and refinery products outside the country are treated as marketing operational expenses; All acquisition costs of fixed assets used in marketing activities are capitalized and depreciated accordingly. CHAPTER VIII ACCOUNTING FOR OTHER AREAS
Organizing port facilities includes: Providing facilities alongside ship and light ship, and coordinating ship movements in a specific port. collecting port service fees from the ships using specific port facilities
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and depositing part of fees withheld to the State Port Enterprise (Perum Pelabuhan) Environment protection includes: Prevention of risk of oil being spilled into the sea and handling such accidents should they occur Collecting environmental protection service fees. 3. a Types of Specific Port Expenses Port expenses consist of: Expenses to obtain license to operate in the water of the port Pier expenses Miscellaneous expenses. b Port facility expenses consist of: Ship docking and port expenses Tug boat operation expenses Mooring boat operation expenses Operation expenses of a convey ship for ship crew Barge operation expenses Miscellaneous expenses. c Environmental protection expenses consist of: Oil spill prevention expenses Personnel expenses Miscellaneous expenses.
Port facilities and equipment. Environmental protection facilities. Accounting Treatment for Expenses and Acquisition Cost of Specific Port Fixed Assets Specific port activities including all port activities owned and operated by PERTAMINA to support operation of oil, gas and other assets. The accounting treatment for these activities is as follows: All expenses incurred from port management, port facilities and environment protection are treated as specific port operating expenses. All acquisition costs of port facilities and supplies and environment protection are capitalized and depreciated accordingly.
B. 1.
Port facility expenses TELECOMMUNICATIONS ACCOUNTING FOR consist of: Definition of Telecommunication
Telecommunication is all communication networks and equipment (radio, telephone, telex, facsimile, etc.) that support PERTAMINAs operations. 2. Description of Telecommunication Activities
Telecommunication comprise all activities in planning, procuring, managing and directing activities, and controlling of data or information in various forms such as voice, manuscript, picture, computer and navigation data by using various telecommunications equipment.
3. 4. Acquisition Cost of Specific Port Fixed Assets The acquisition cost of specific port fixed assets comprise acquisition costs of:
Types of Telecommunication Expenses
Telecommunication expenses include all expenses arising from communication activities to support PERTAMINAS operations which consist of: Leased channel expenses
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Communication licenses and executory right expenses Channel connection/installation/switching expenses Telephone line expenses for other institutions that support PERTAMINA's operations Miscellaneous expenses. 4. Acquisition Cost of Telecommunication Fixed Assets
The tasks and activities of the first party, who owns the field, are: a To transfer the field which will be rehabilitated and developed by the second party or parties who provide funds and services. To control the execution of the field operation. To verify, examine, and approve field operation expenses as a deduction of incremental production results (cost recovery).
b c The acquisition cost of telecommunication fixed assets include the acquisition cost of telecommunication facilities and equipment. 5. Accounting Treatment for Expenses and Acquisition Cost of Telecommunication Fixed Assets a Telecommunication expenses. All expenses from telecommunication operations are treated as telecommunication operating expenses. b b Cost of telecommunication fixed assets. All acquisition costs of telecommunication fixed assets are capitalized and depreciated accordingly, except for telecommunication fixed assets handed over to PERUMTEL which are recorded as other assets (Deferred Costs). ACCOUNTING FOR TECHNICAL ASSISTANCE CONTRACT Definition of Technical Assistance Contract
The tasks and activities of the second party or parties who provide the funds and services are: a To carry out field rehabilitation and development in order to achieve a higher production level than before. To amount for field operation costs as costs to be recovered by the first party, in conformity with the contract. Types of Technical Assistance Contract Costs and Expenses
3.
C. 1.
Technical assistance contract costs and expenses cover development costs and production expenses. These types of development costs and production expenses have been discussed earlier in the accounting for development and production.
A technical assistance contract is a work relationship between two or more oil enterprises, in which the first party owns the oil field to be developed and the second party or parties are committed to provide funds and services for rehabilitation and development of the field by bearing all executory costs to increase oil production. The second party or parties who provide funds and services will have a share in the incremental production in accordance with the agreed contract. 2. Description of Technical Assistance Contract Activities
4.
Accounting Treatment for Technical Assistance Contract Costs and Expenses
Development and production expenses are treated as capitalized costs and expenses, respectively. D. 1. ACCOUNTING FOR UNITIZATION Definition of Unitization
Technical assistance contract development and production activities.
activities
include
rehabilitation, Unitization is a cooperation between two or more oil enterprises in developing and producing two or more oil and gas fields which are geologically
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close to each other. The sharing of costs and production is determined based on an agreement. In a unitization operation generally there is a cooperation among enterprises, one acting as the operator and the other as the non-operator. The operator is the enterprise which carries out the unitization operation whereas the non-operator is the other party in unitization who is not involved in the unitization operation. 2. Description of Unitization Activities
4.
Accounting Treatment for Unitization Cost and Expenses
Costs and expenses from a unitized operation are shared between the operator and non-operator enterprises based on an agreement. Costs and expenses borne by each enterprise are accounted for in accordance with each respective enterprises accounting policy. Generally, development costs are capitalized, whereas expenditures for production are treated as expenses. E. ACCOUNTING FOR SECONDARY RECOVERY CONTRACT Definition of Secondary Recovery
Unitization includes development and production activities. In a unitization, there is a cooperation between an enterprise functioning as the operator and an enterprise functioning as the non-operator. a The task and obligations of the operator enterprise are as follows: To finance part of the operation costs in accordance with the agreement. To execute the operation which includes development activities and field production. To bear part of the operating costs of the non-operator, in conformity with the agreement. To provide accountability for the operating costs to be borne by the non operator enterprise. b The non-operator enterprise is obliged to transfer money/goods/services for financing part of the operation to the operator in accordance with the agreement.
1.
Secondary recovery is a method of recovering oil and gas by inducting artificial energy into a formation in order to increase the production level beyond the production level reached during the first recovery. Secondary recovery can be performed by the enterprise itself or contracted to other parties. This sub-chapter only outlines the secondary recovery operated in the form of a contract. Secondary recovery performed by the enterprise itself has been outlined earlier in the chapter describing accounting for production activities.
2.
Description of Secondary Recovery Activities Secondary recovery contract determines tasks and obligations as follows: a The tasks and obligations of the enterprise that owns the oil and gas field are: To hand over the activities in developing old oil and gas fields and in producing oil and gas to the party who will execute the secondary recovery. To control the expenses incurred during the secondary recovery
3.
Types of Unitization Costs and Expenses
Unitization costs and expenses include development costs and production expenses. The types of development costs and production expenses are outlined in the Accounting Standard for Development Activities and the Accounting Standard for Production Activities.
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operation which are paid by the executor. 2. To finance part of the operating costs in accordance with the agreement stated in the contract provided the owner of the oil and gas field is involved in the operation. b The tasks and obligations of the enterprise that executes the secondary recovery are as follows: To execute the development of the oil and gas fields which includes re-drilling to assess the economic value of the hydrocarbonate content. To execute the recovery (production) of the oil and gas to the land surface. To provide accountability for the incurred costs to the owner of the oil and gas fields. a. 3. Types of Secondary Recovery Costs and Expenses b. Description of Joint Operation Activities
A joint operation is intended to reduce the risk and costs of the parties involved. A joint operation includes exploration, development and production activities. In a joint operation there is cooperation between an enterprise that functions as the operator and other enterprises that function as non-operators. This cooperation takes various forms, such as Joint Operating Agreement (JOA) and a Joint Operating Body (JOB). In a JOA, PERTAMINA acts as a non-operator while a foreign contractor acts as the operator. In a JOB, PERTAMINA is the operator while a foreign contractor acts as a non-operator. The operators tasks and obligations are: To finance part of the operation costs in managing the exploration, the development and production activities of a mining area. To manage activities in the mining/working area including exploration, development and production activities. To bear part of the operation costs from the non-operator and provide an accounting to the non-operator about its part of the operation costs that should be borne by the non-operator enterprise.
Secondary recovery costs and expenses include development costs; and production expenses. These types of costs and expenses are the same as detailed in the accounting standard for development and production activities.
c. 4. Accounting Treatment for Secondary Recovery Costs and Expenses
Development costs and production expenses arising from the secondary recovery operations are treated as capitalized costs and expenses respectively.
The non-operator enterprise is responsible for delivering money or services to finance part of the operation costs in managing the mining area in accordance with the agreement. 3. Types of Joint Operation Costs and Expenses Types of Joint Operation costs and expenses include a. Exploration costs and expenses
F. 1.
ACCOUNTING FOR JOINT OPERATIONS Definition of Joint Operation
A joint operation is a capital cooperation through which two or more oil enterprises carry out exploration, development and production activities in an oil and gas mining area and sharing the expenses and production based on a contract.
b. Development costs
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CHAPTER IX c. 4. Production expenses. EFFECTIVE DATE Accounting Treatment for Joint Operation Costs and Expenses This Statement becomes effective, at the latest, for financial statements prepared during the period ended on March 31, 1991.
Costs and expenses incurred in operating a mining area under a joint operation agreement are split between the non-operator and operator enterprise in accordance with the agreement. Costs and expenses borne by each enterprise are accounted for in accordance with each respective enterprises accounting policy. In general, expenditures for exploration are capitalized or treated as expenses, development costs are capitalized, and expenditures for production are treated as expenses.
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Appendix 1 b. HISTORY OF OIL AND GAS INDUSTRY IN INDONESIA 1. Before 1971 a. Dutch Colonial Period prior to 1941 The idea of mining oil and gas in Indonesia was initially started in 1885 when the oil reserves at Telaga Said, South Sumatra, were discovered by A.J. Zijlker, a Dutch plantation businessman. To regulate mining of oil and gas in Indonesia, in 1899 the Dutch government announced a decree called Indische Mijn Wet, which was published in Staatsblad No. 214 year 1899, under this decree the entrepreneur and mining were organized in accordance with the concession area of mining. The legislation applied a pattern of cooperation that recognized the rights of individuals. Until 1941, mining concession areas in Indonesia were divided into: Concession areas of Betaafsche Pertroleum Maatschappij (BPM) and Caltex in North and Central Sumatra. Concession areas of Nederlansch Indische Ardolie Maatschappij (NIAM) in Jambi. Concession areas of Standard Vacuum Petroleum Maatschappij (SVPM) and BPM in South Sumatra. Concession areas of BPM in East Java and Cepu. Concession areas of NIAM in East Kalimantan. Concession areas of Nederlansche Nieuw Guinea Petroleum Maatschappij (NNGPM) in Irian Jaya. c. During Japanese occupation, oil and gas mining activities performed by the enterprises mentioned above were stopped, because all oil fields were taken over by Japanese authority who subsequently continued the operation of most of these fields. Indonesia Independence The Indonesia government took over the oil and gas enterprise operations by establishing three enterprises: Perusahaan Tambang Minyak Nasional Republik Indonesia (PTMNRI) for North Sumatra. Perusahaan Minyak Republik Indonesia (PERMIRI) for South Sumatra. Perusahaan Tambang Minyak Nasional (PTMN) for East Java. Japanese Occupation Period 1941 1945
After the establishment of the Republik Indonesia Serikat (RIS) on December 19, 1949, the mining concession areas in Indonesia were changed, i.e. PTMNRI for North Sumatra, CALTEX for mainland Riau, BPM & STANVAC for South Sumatra, BPM & PTMN for East Java. During 1951 until 1959 the following changes occurred: PTMNRI was changed into Perusahaan Tambang Minyak Republik Indonesia (PTMRI) in 1951. Then PTMRI was changed into Perusahaan Tambang Minyak Sumatra Utara (TMSU) in 1954. TMSU was liquidated and was changed to PT Perusahaan Minyak Nasional (PT Permina) on December 10, 1957, the date that was later recognized as the date of the establishment of PERTAMINA.
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The Indonesia government purchased NIAM and changed it to PT Pertambangan Minyak Indonesia (PT Permindo) in 1959.
In 1961, the government established three enterprises: Perusahaan Negara Pertambangan Minyak Indonesia (PN PERTAMINA), which operated in South Sumatra and mainland Riau. Perusahaan Negara Pertambangan Minyak dan Gas Nasional (PN Permigan), which operated in East Java/Cepu. Perusahaan Negara Pertambangan Minyak Nasional (PN Permina), which operated in North Sumatra.
The operation of oil and gas in Indonesia was regulated in Article 33 points (2) & (3) the Indonesian Constitution (Undang-undang Dasar or UUD 1945). Since at that time there had been no ordinances regulating the mining of oil and gas, the concession method was used until 1959, even though it was not in accordance with the UUD 1945. In 1960, Government Regulation (Peraturan Pemerintah) No. 19 was issued to substitute the ordinance of State Enterprise (Perusahaan Negara/PN). PN was an organizer of certain production sectors that should be owned by the government. Later on, Constitution No. 44/1960 regarding oil and gas mining was issued. It states that, among others: Art (1) Oil and gas mining materials are national assets that should be owned by the government Art (3) Oil and gas activities can only be carried out by the government, which operated by a state enterprise (PN). Art (5) The contractor is the party who works to only help the state enterprise and receive compensation for its efforts. As the Constitution No. 44/1960 became effective, Indische Mijn Wet was no longer in effect. At that time there were three big enterprises in Indonesia: PT Shell Indonesia which was operating in the areas surrounding Balikpapan and Plaju; PT Caltex Pacific Indonesia (PT CPI) which was operating in mainland Riau; PT STANVAC Indonesia (PTSI) which was operating in South Sumatra and mainland Riau. 2.
In 1963, PN PERTAMINA sign a contract of work (Kontrak Karya / KK) with PT CPI, while PN Permigan sign a similar contract with PTSI. In 1965, PN Permigan was liquidated and its concession area was given to PN PERTAMINA and PN Permina. Back then the tasks of supplying oil for domestic market were handled by PN PERTAMINA, while marketing for export were handled by PN Permina. Since the contract of work were not considered to be in accordance with the spirit of UUD45 and the results were not satisfactory, in 1967 the cooperation with foreign contractors was rearranged under the Production Sharing Contract / PSC (Kontrak Bagi Hasil / KBH). In 1968, the Government published Government Regulation (Peraturan Pemerintah / PP) No. 27 which merged PN PERTAMINA and PN Permina into PN PERTAMINA. After 1971 In 1971, Constitution (Undang-undang / UU) No. 8 was issued to grant special status to PN PERTAMINA. This legislation changed PN PERTAMINA to PERTAMINA. UU No. 8 consists of 14 chapters, which are General Policy, Establishment Policy, Objectives and Line of Business, Capital Structure, Mining Concession, Enterprises Tasks and Obligation, Board of Government
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Commissioners, Board of Directors, Accounting Period, Enterprise Budget, Annual Accountability Report, Liquidation, Temporer Policy and Concluding Policy. This legislation is further discussed in Appendix 2. As oil prices increased in 1974, the government changed the contractor obligation. Before, the profit sharing of net operating income was 60:40 to the governments profit, and the sharing of production revenue less the production sharing contracts operating costs was 65:35 to the government profit. These were later changed as follows: the sharing of the first five dollars (the base price) remained the same as before, while the excess was divided 85:15 to the governments profit. This change was known as the New Deal. In 1976, some changes were made that resulted in more advantages for Indonesia. Under new arrangement, called the New Term, the base price was eliminated, while the ratio of sharing between the government and the contractors remained at 85:15. At the same time, the profit sharing for gas remained the same at 65:35. The Indonesian governments portion included tax liabilities and other fees collected from the contractors. As the contract of work was terminated on November 27, 1983, the profit sharing arrangement, especially for Caltex, was changed to a Production Sharing Contract with profit sharing of 88:12. Types of cooperation between PERTAMINA and foreign contractors are: a. Contract Of Work (COW) Only three enterprises, PT CPI, PT SI, and PT Calasiatic & Topco (T&C), have entered into this type of contracts. Under this type of contract, the sharing is based on profit, but the contractors handle the management and own the assets. The contract with PT SI ended in 1992, while the contract with PT T&C will end in 2001; b. Production Sharing Contract (PSC) The main characteristics of this type of contract are that PERTAMINA is assigned to handle the management and owns the assets, and the production is shared after deducting the operating expenses;
c.
Other Contracts In addition to the two types of contracts mentioned above, other types of contracts are also known: Unitization Contract. This contract represents a cooperation between two or more oil enterprises to develop oil and gas fields and to produce oil and gas which are geologically close to each other. The sharing of expenses and production is determined based on an agreement. Technical Assistance Contract (TAC). This type of contract is characterized by the effort to increase the declining production of PERTAMINAs old wells. The contractors perform all the activities and bear all the costs. The incremental oil production is shared between PERTAMINA and the contractor after calculating production costs, and the sharing is based on PSC arrangements. Joint Operation Agreement. A joint Operation Agreement is a form of capital cooperation between two or more oil enterprises to conduct exploration, development and production activities in an oil and gas mining area, by bearing costs and sharing its production in accordance with the contract. Secondary Recovery Contract (Secrec). A Secondary recovery contract is a contract to perform second stage oil and gas recovery by inducting artificial energy into a formation to increase the production level beyond the production level reached during the first recovery production. Loan agreement. A specific characteristics of this type of contract is that PERTAMINA borrows money from foreign parties to explore and produce oil and gas within its work area. If PERTAMINA fails to find oil and gas in that area, PERTAMINA is released from obligation to return loan proceeds. On the other hand, if it succeeds, PERTAMINA is
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required to pay the loan interest and premium. This obligation is to be fulfilled within a certain period of time in installments in the form of oil installments. Tax imposed on the creditor is charged to PERTAMINA. 3. Development of Oil Accounting in Indonesia a. Oil accounting is accounting for oil enterprises which includes accounting for the following activities: Searching for and developing oil and gas reserves. Lifting oil and gas to the surface. Transporting oil and gas to a refinery or other delivery station. Processing oil and gas into oil and gas products and processing them further into hydrocarbon chemicals and other materials in process (petrochemical products). Other activities which support the oil enterprises.
BPM conducted its exploration and production activities in Langkat, North Sumatra (Telaga Said and Perlak fields), East Kalimantan (Sanga-sanga, Tarakan, Samboja, Bunyu dan Tanjung fields), Java (Cepu fields), oil distribution pipes operation from Perlak fields to Pangkalan Brandan, and processing operations at Pangkalan Brandan, Balikpapan and Plaju refineries. The marketing efforts were conducted by Asiatic Petroleum while oil transportation was run by Anglo-Saxon Petroleum Enterprise. To conduct the operations covering large areas, BPM established 5 administrative unit centers: Pangkalan Brandan, Plaju, Cepu, Balikpapan and Tarakan. The second group was NV SVPM, which was later known as STANVAC, a merger between Nederlandsche Koloniale Petroleum Maatschappij (NKPM) and Standard Oil Enterprise of New Jersey in 1933. This group operated in Central and South Sumatra (Talang Akar field, Sago, Ukui, Andan, Sungai Pulai, and Keruh fields in Lirik). In Java, STANVAC discovered oil in the fields near Cepu, i.e. Trembul, Lusi and Pilang Bango fields. STANVAC also built a refinery in Sungai Gerong. The third group was NV Caltex Pacific Petroleum Maatschappij, a merger of NV Nederlandsche Pacific Petroleum Maatschappij (NPPM), a subsidiary of Standard Oil Enterprise of California (SOCAL), and Texas Oil Enterprise (TEXACO) in 1936. This group operated in central Sumatra (Blok Rokan, Sebanga, Duri and Minas fields). The above groups also market their oil locally. The marketing activities, aimed to generate profit, cover logistic, storage and distribution activities. In addition to the 3 groups of foreign oil enterprises, there was another foreign oil enterprise that operated in the area of West Irian (Nederlands Nieuw Guinea), i.e. NNGPM, a joint venture of BPM, Stanvac, and Far Pacific Investment Coy (representing Caltexs share). This enterprise carried through the activities at BPM by conducting exploration in the concession area Nieuw Guinea Block.
b.
The development of oil accounting in Indonesia can be seen from the viewpoint of a foreign oil enterprise or the state oil enterprise.
Foreign Oil Enterprises Initially, oil accounting in Indonesia was conducted by foreign oil enterprises operating in the Dutch-Indies area. Generally, these enterprises were affiliates of big international oil enterprises. Prior to Indonesian independence there were three groups of foreign oil enterprises operating in the Dutch-Indies area. The first group was Royal Dutch Shell, which resulted from a merger between the Royal Petroleum Enterprise or De Koninklijke Nederlandsche Petroleum Maatschappij and Shell Transport and Trading Enterprise (1907). This group founded affiliated enterprise BPM, Asiatic Petroleum and Anglo-Saxon Petroleum Enterprise.
After Indonesian independence, several government regulations influenced the accounting practices of foreign oil enterprises in Indonesia. Some government policies which effected the accounting practices were:
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Limitation on selling price of oil marketed locally (1958). Prorata Obligation (1962). Subsidy and local oil logistic fees(1963). Contract of work that include crude oil export regulations, import and export of operational goods, repair of equipment overseas, takeofer of unusable assets in oil operations, profit sharing between the government and foreign oil enterprises (1963).
The accounting system should be able to produce various reports required by Indonesian regulations, such as a work program and budget, production, reimbursable costs, profit to be shared, national logistic obligation, income tax, tax on interest, dividend and royalty, and others, including the calculation thereof. The Indonesian regulations has also affected several transactions, such determination of price and cost, and presentation of financial statements which constitute part of the international operation of the parent enterprise.
In 1964, PN Permina signed an agreement with the Refining Associates of Canada Ltd. (REFICAN) which was the first foreign oil enterprise cooperation based on a profit sharing principle. Since then, other foreign oil enterprises followed in REFICANs steps by signing profit sharing contracts. These foreign oil enterprises, view their business in Indonesia as a geographical expansion of their international operation. Accounting aspects for these enterprises are: Sale or transfer of mining rights in Indonesia to other parties when the mining activities are geared toward commercial production. Translation of foreign exchange transactions in which the currency differs from the one used for accounting. Characteristics of rights influenced by types of mining business. Dutch Indies or Indonesian regulations, including contract clauses, as basis of the mining enterprises rights, determination of prices and expenditures, whether operational or capital, and presentation of foreign oil enterprises financial report.
State Oil Enterprise With regard to state oil enterprises, it can be seen that the prevailing accounting policies and practices result from the evolution of PERTAMINA. Assets and accounting systems of various foreign oil enterprises were purchased by PERMINA, which later merged with other state oil enterprises to become PERTAMINA. Efforts to harmonize accounting practices were undertaken, mainly by adopting accounting practices in Continental Europe (the Shell system) and adding several American accounting practices since the early 60s. Subsequently, there were changes in accounting for the oil industry as stated in the state regulations. The resulting accounting policies and practices were later integrated into PERTAMINA accounting system, even as the accounting integration process continues. According to the prevailing law, PERTAMINAs objective is to build and carry out oil and gas business in a broad sense for the maximum wealth of people and country and to create a national defense. (Article 5, section III of PERTAMINA Regulation). To realize its accountability to the government as part of the efforts to meet PERTAMINAs stated objective, PERTAMINAs Board of Directors perform the following activities:
For Foreign oil enterprises operating in Indonesia, oil accounting therefore implies the following: As affiliated enterprises, they generally apply accounting systems as outlined in the parent enterprises accounting manual, and a separate accounting policy for transactions and reporting in currency that differs the parent enterprise.
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Prepare annual budgets and seek approval from the Board of Government Commissioners of PERTAMINA (KPP). Present quarterly reports on budget performance and other important activities to DKPP. Present annual reports (at least a balance sheet and an income statement) to DKPP whether they are unaudited or audited by Agency of Supervision for Finance and Development (Badan Pengawasan Keuangan dan Pembangunan / BPKP). To make management of business and its accountability easier, various manuals such as the Budget Manual, Accounting Manual, Obligation to Government Calculation Manual, Oil Cost Calculation Manual, Quantity Accounting Manual and Treasury Manual have been created. State-owned PERTAMINA, in its capacity as an agent of development as well as an economic entity, uses an accounting system with two basic characteristics: Appendix 2 PERTAMINA 1. Organization
The enterprise is lead and managed by a Board of Directors consisting of a president director and at least five directors. The Board of Directors are responsible to PERTAMINAs Board of Government Commissioners (DKPP) and the President Director represents directors in such a capacity. The DKPP is appointed and discharged by the President of Indonesia. This Board sets PERTAMINAs general policy and suggests to the government steps needed to improve the enterprises management. In carrying out these tasks, the DKPP is accountable to the President. In various aspects of the operation, including production control, work safety control and other activities in mining of oil and gas related to public interest, the directors are responsible to the Minister of Mining and Energy. Each director leads a directorate, in which there are six directorates. The activities of the six directorates can be classified into operational functions and supporting functions. Directorates that perform operational functions include: a. Directorate of Exploration and Production b. Directorate of Processing c. Directorate of National Logistic (Dit EP) (Dit P) (Dit PDN)
As an institution that bears the mission of organizing local fuel logistic with several characteristics such as: Operation that breaks even, resulting in a fuel subsidy or oil net profit (LBM). Pro-rata basis which influences purchasing accounts and oil inventories. Sale of oil products and certain gas as a reduction of fuel costs.
As an economic entity of which the net income is taxed at 60 percent. Directorates that perform supporting functions include: These two accounting characteristics make it infeasible to compare PERTAMINAs financial reports with other oil enterprises financial reports. a. Directorate of General Affairs b. Directorate of Finance c. Directorate of Shipping (Dit Umum) (Dit Keu) (Dit P&T).
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b. c. d. In Managing the enterprise, the president director is support by: a b The Head of the Foreign Contractors Coordinating Board (BKKA) who coordinates the operation of foreign contractors (PS and CW). The Enterprise Inspector who leads the PERTAMINAs internal control unit (SPI).
Europe Representative office, located in London. East Asia Representative office, located in Tokyo. Southeast Asia Representative office, located in Singapore.
In addition to the regional and overseas representative offices of PERTAMINA, there are some projects within PERTAMINA that perform certain development stage activities. These projects are managed by a project head who is directly responsible to the Board of Directors. 2. Enterprise Objectives and Tasks
Under the Decree of PERTAMINAs Board of Directors, for each region that has more than one operational function, a regional office is established. The regional office is lead by a Regional Head (PUD), who is assisted by an operation manager and supporting managers. For each region with only one operational function, a PERTAMINA unit is established. The unit is lead by a Unit Head (PU). A Regional Head (PUD) is functionally and operationally responsible to the president director, while a manager is functionally responsible to the related director and operationally responsible to a Regional Head (PUD). The Unit Head (PU) is functionally and operationally responsible to a related director. The regions are: a b c North Sumatra with Regional Head in Pangkalan Brandan. South Sumatra with Regional Head in Plaju. Kalimantan with Regional Head in Balikpapan.
The enterprises objectives are to develop and carry out mining of oil and gas in the broadest sense for the countrys benefit and for the welfare of the Indonesian people and to create a national defense.
PERTAMINA tasks are: b c To carry out mining of oil and gas that would benefit the country and the Indonesian people. To provide and fulfill local needs of fuel and gas as determined in government regulations (PP) Mining Activities and Authorities
3.
A regional Head supervises a number of managers: Exploration and Production Unit Manager, Processing Unit Manager, National Logistic Unit Manager, General Affairs Manager, Finance Manager, Shipping Manager, Head of Internal Audit and Security Manager. In addition to the three regions, there are two PERTAMINA Exploration and Production units (Cirebon & Sorong), two PERTAMINA Processing units (Dumai and Cilacap) and five PERTAMINA National Logistic units (Jakarta, Semarang, Surabaya, Ujung Pandang, Jayapura). PERTAMINA also has four Representative Offices which are managed by an Office Head who is directly responsible to the president Director. The four Representative Offices are: a. USA Representative office, located in Los Angeles.
The Enterprise operates in the oil and gas industry which covers exploration, extraction, purification and processing, transportation and sales activities. With the Presidents approval, the enterprise can expand its lines of business as long as they are related to the oil and gas industry as mentioned above, and based on the enterprises plan and budget. All legal mining areas within Indonesia are available for mining oil and gas. In granting mining areas within concession rights to an enterprise, the President of Indonesia, based on the recommendation of the Minister of Mining and Energy, determines the geographical limits of a mining concession and other requirements related to the concession.
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Appendix 3 ACCOUNTING METHOD FOR OIL AND GAS INDUSTRY There are two main accounting methods applied and generally accepted in the oil and gas industry: the Full Cost Method (FC) and the Successful Efforts Method (SE). The main differences between the two relate to the accounting treatment for dry hole well and other exploration costs. Other differences relate to the accounting for most forms of transfer of mining rights, and the methods of calculating depletion, depreciation and amortization. Full Cost Method The Full Cost Method is based on the single asset theory which views all oil and gas mining assets as an asset entity. All pre-production costs are capitalized and amortized on a pro rata basis. In operation, the definition above has developed from the single asset method to a country-by-country method (country as a cost center). Costs incurred are capitalized and amortized based on oil reserves contained in the country where the enterprise carries out the activities. Based on the Full Cost Method, the accounting treatment for dry hole expenses, transfer of mining rights and calculation of amortization are as follows: Dry hole exploration costs. Dry hole exploration costs constitute part of the acquisition cost of all reserves owned by the enterprise in a country and should be capitalized. As long as the enterprise is still located in the same country, even though the dry hole may be located thousands of kilometers away from a proven well owned by the enterprise and drilled for investigating a different geological formation, it is part of the same asset and its cost is a part of the assets cost.
Transfer of mining rights. When the revenue from sale of a mining right in one location is different from its historical cost, gain or loss from such a sale can not be recognized, because the location sold is an inseparable part of total assets value (in that country). Loss will be recognized if revenue from sale of the total assets is less than its historical cost. Amortization Calculation Amortization of reserve costs is not calculated per total assets but per country. Successful Efforts Method The Successful Efforts Method is based on the multiple assets theory which assumes an enterprises assets invested in each reserve as an asset entity. The accounting treatment for dry hole exploration costs, transfer of mining rights and the basis of amortization calculation are as follows: a Dry hole exploration costs. Dry hole exploration costs are recorded as expenses because the activity does not result in any reserve of economical value. Since each reserve is treated as a separate asset, costs of dry holes can not be treated as part of another productive well costs. b Transfer of mining rights. The gain or loss from the transfer of mining rights is recognized when the revenue of the transfer differs from the historical cost of the reserve. c Amortization Calculation. Amortization of proven reserve costs is calculated per asset or per reserve.
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Comparison of Full Cost and Successful Effort Method Under the Full Cost Method, all costs incurred in obtaining mining rights, exploration and development activities are capitalized as they occur and will be amortized after the reserves produce oil and gas, with a limitation that capitalized costs do not exceed the value of the oil and gas reserves found. In cases where the enterprise fails to find oil and gas, the cost of mining rights and exploration are treated as unavoidable costs. This method capitalizes all costs incurred, including the cost of unsuccessful exploration, until oil and gas reserves are found. Under the Successful Efforts Method, all exploration costs for oil and gas reserves are temporarily capitalized until a certain point when it is decided that oil and gas exploration efforts have failed or produce no commercial value. If the exploration finds commercial oil reserves, all costs incurred and related development costs will be capitalized. If the exploration fails or is noncommercial, all costs incurred will be treated as expenses. In the implementation, each of these two methods have advantages as well as disadvantages, depending on whether, oil and gas reserves are found or not. For an enterprise that finds oil and gas reserves, the two methods do not result in a difference, except for geological and geophysical costs. For an enterprise that fails to find oil and gas reserves, the methods have different effects, especially in accounting for exploration costs. Small enterprises generally tend to choose the Full Cost Method, whereas larger enterprise prefer the Successful Efforts Method. Basic Concepts of Full Cost and Successful Effort Methods Both methods assume that the enterprises success in exploring and producing oil and gas is measured mainly by its capability in discovering oil and gas reserves. Full Cost Method a Costs disbursed for all activities, whether they bear success or not, are absolutely needed for finding oil and gas reserves. Separating exploration costs and development costs into different categories does not reflect the real condition of the oil and gas industry;
This method views all exploration and development efforts and their resulting costs as reserve costs of discovered oil and gas. Although there is no direct relationship between exploration costs and oil and gas reserves found, there is a logical relationship as oil and gas reserves can not be found before the disbursement of such costs; The most important asset of an oil and gas enterprise is its oil and gas reserves, rather than the number of wells drilled to produce the oil and gas. Since there is no way to avoid failure in exploration, well costs and other unproductive exploration costs are treated as an integral part of the costs of discovering and developing oil and gas reserves. Therefore, such costs should be capitalized; The Full Cost Method allows comparison of financial statements of oil and gas enterprises. Financial statements prepared under this method, present all costs and assets that overall reflect an enterprises profit or loss based on the expense and revenue recognition concept. Full Cost Method financial statements present information related to the changes in the recovery of oil and gas reserves which enables a comparison between cumulative and current year result, that arise from exploration program and costs of discovering and developing oil and gas reserves.
Successful Efforts Method a Under this method, exploration and discovery costs of oil and gas reserves is not required to be treated as an entity; This method recognizes an asset only when that asset is perceived as having a future benefit. For that reason, costs with no future benefit should be expensed in the period incurred. Capitalization of costs of failed exploration is in effect the same as deferring of a loss report. This resulting in an overstated current income; This method is based on a pure historical cost concept. Under this method, a gain or loss from transfer of mining rights is recognized when the revenue from such a transfer differs from the acquisition cost of assets contained in the reserve. This is different from the Full Cost Method in which a gain from the sale of mining rights in one location is usually not recognized as the location sold constitutes an inseparable part
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of total assets, even though the sales revenue exceeded the acquisition cost of the location. Under the Full Cost Method, a gain will be recognized when revenue from the sale of the location exceeds the total value of assets (in that country).
GLOSSARY OF TERMS 1. Atmospheric distilling Distilling process at a distillation unit (distiller) by using atmospheric pressure. Basic sediment and water Sediment and water contained in oil fraction, the amount of which can be detected by laboratory testing (ASTM-D 1796). Casing head Fixed equipment installed or welded at the outside part on top of the well. This equipment is used not only as a place for cross spray but also as an output channel for the side gas. Christmas tree A chain of valves to control the pressure in a specific well and the speed at which fluid flows up to the ground. Delineation well or appraisal well The first group of wells to be drilled after the oil and gas have been found, in order to determine the size of the oil and gas reservoir, productivity of the wells and oil and gas characteristics in that area. Development well A well which is drilled in an area which has been proven to contain oil or gas, in order to complete the desired production on that area. Drill stem test A method of testing to determine the oil content which possibly can be produced from a layer and can be done in a well with covered or open pipes by using a chain of drilling pipes. The result of the test gives information about the production speed which can be expected from that layer. Dry hole An exploration or development well which turns out incapable of producing oil or gas in an economical manner.
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9.
Enhanced recovery The injection of energy into a reservoir to make an unproductive well productive.
boiling points is done through heat and steam injection. The topping unit is also called a crude distiller or atmospheric distillation. 17. Treating unit A unit that consists of a group or several groups of equipment aimed to improve the quality of oil fractions to meet market requirements for the next stage of processing. 18. Tubular goods All types of pipe in an oil field, including tubing pipes, casing pipes, drill pipes and line pipes. 19. Distillation unit A vessel that separates oil fractions at certain ranges of boiling points. It can separate two fractions or more, at low or high pressures. This separation can be achieved through heat from fuel, heat from steam or heat from other hot oil. 20. Vacuum distillation A vessel that separates oil fractions based on boiling points when the fractions can not be separated by a topping unit, a crude distiller or an atmospheric distillation. 21. Water flooding A method of increasing the amount of oil gathered by injecting water into the reservoir to lift additional oil missed in the first recovery. Usually, water flooding involves injection of water through wells especially made for such an injection and lifting of water and oil from production wells drilled in connection with injection wells. 22. Well logging Notes on all data gathered during the drilling of a well. With this data, it is possible to form a detailed strata picture. 23. Well car An exploration well drilled in an area not yet proven to contain oil and gas but, according to geological and geophysical surveys, shows potential hydrocarbon accumulation.
10. Geological survey Detailed investigation on physical structure of stones at the top layer of the earths surface. The survey constitutes an initial step in the process of finding oil and is the most practical way, aside from drilling, to determine the shape and size of an underground layer of stone that might contain hydrocarbon. Gravitation, seismic and magnetic surveys are the types of geophysical surveys that usually cover a wide area. 11. Geophysical survey A systematic survey intended to find and exploit hydrocarbon. This survey not only covers the physical nature of stone (geological survey), but also hydrocarbon (batimetric and current measurement) and meteorology (recording of weather data). 12. Incite combustion A method used to increase oil yield. Under this method, heat is produced in the reservoir by injecting air and burning part of the oil reserve. 13. Manifold Arrangement of pipes in a manner that makes it possible to divide one flow into several flows or combine several flows into one flow. 14. Covered pipe Steel pipe installed on the wall of an oil or gas well when the drilling takes place. Such pipe is used to protect the wall from collapsing during the drilling, and acts as a trap for oil flow if the well is productive. 15. Separator An equipment that may take shape of a pillar, a steel cylindrical tank, a drum or a vessel, with concrete partitions that separate gas from oil, water from gas, and oil from water simultaneously. 16. Topping unit A vessel that separates oil fractions from the lowest range of boiling point to the highest boiling point at atmosphered pressure. The separation at
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PSAK 29 For Oil and Gas in English

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Unofficial Translation STATEMENT OF FINANCIAL ACCOUNTING STANDARDS SFAS No.

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

CHAPTER II ACCOUNTING FOR EXPLORATION 1. Definition of Exploration

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Secondary recovery system costs. 4. Accounting Treatment for Development Expenses 1.

CHAPTER IV ACCOUNTING FOR PRODUCTION Definition of Production

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

CHAPTER V ACCOUNTING FOR PROCESSING

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

ACCOUNTING FOR TRANSPORTATION 1. Definition of Transportation

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Types of Telecommunication Expenses

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting Treatment for Technical Assistance Contract Costs and Expenses

Technical assistance contract development and production activities.

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting Treatment for Unitization Cost and Expenses

Types of Unitization Costs and Expenses

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

c. 4. Accounting Treatment for Secondary Recovery Costs and Expenses

ACCOUNTING FOR JOINT OPERATIONS Definition of Joint Operation

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry

Accounting for Oil and Gas Industry