OIL AND GAS ACCOUNTING: PRACTICE, CHALLENGES AND SOLUTIONS IN NIGERIA (A CASE STUDY OF EXXON MOBIL NIGERIA PLC)
Accounting regulatory bodies usually formulate industry specific standards when an industry has peculiar characteristic of accounting for banks and nonbank
financial institutions. The oil and gas industry is one of such industries that have specific accounting standards. This can be attributed to its peculiarity
in terms of high capital requirement, earning volatility, regulation, type of business ownership, taxation, non-correlation between the amount of investment
made and returns obtained (Wright and Hallun et al, 2008) and high sensitive to risk price risk and foreign exchange risk.
Up and 2012 when the International Financial Reporting Standard (IFRS) was adopted by exploration companies in Nigeria, Nigerian companies in the
upstream sector prepared their financial statement in line with the statement accounting standard 14 (accounting in the petroleum industry; upstream
activities and SAS 17 (accounting in the petroleum industry) formulated by the Nigerian Accounting Standard Board.
By its adoption of IFRS, Nigeria joined over 100 countries who either use or have adopted t he accounting guidelines as stipulated by the International
Accounting Standard Board (IASB). This will ensure harmony and easy comparison of financial statements. This is particularly useful in the oil and gas
industry considering that it is one of the most global industries. The adoption of a common accounting framework also widens access to investment
IFRS 6 applies to expenditure incurred by an entity in connection with the search for mineral resources. The standard divides upstream activities into two
groups namely: exploration and evaluation activities and development activities. The standard under paragraph 9 discusses exploration and evaluation
activities. Examples of expenditure that can be categorized as exploration and evaluation according to paragraph 9 are acquisition of right to explore,
topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling cost, costs incurred in trying to evaluate the
technical feasibility and commercial violability of extracting resources. These cost are capitalized and classified as tangible or intangible (IFRS 2011).
Developing activities involves developing the results from extractive activities. This usually requires huge amount and paragraph 10 of (IFRS) 6 states that
these expenditures should be categorized as intangible assets and treated as per the guideline provided in IAS 38 (intangible assets).
Accounting for the upstream sector is quite controversial and companies may choose from either the successful sorts method or full cost method. Successful eort
is a method of accounting for petroleum exploration and development expenditures that permits capitalization of expenditures only a successful projects while expenditures in unsuccessful wells are expenses. A drilling sort is classified as successful if it results in the extraction of
economically recoverable oil and gas and classified as unsuccessful if it results I a dry hole.