This eBook provides a focused discussion on how companies in the Energy Sector can prepare for compliance with ASC 842 and IFRS 16 along with an overview of special considerations that are of significance for Oil & Gas companies.
Oil and gas entities will need to change certain lease accounting practices when implementing the new standards, which could have far-reaching implications for oil and gas entities’ finances and operations. For example, determining which agreements are in the scope of ASC 842 and IFRS 16, applying the definition of a lease, and allocating contract consideration to the lease and non-lease components of contracts will require extensive data collection, analysis and informed judgments.
Leases of oil and gas mineral rights or drilling rights are outside the scope of ASC 842 and will continue to be accounted for under the guidance in ASC 932, Extractive Activities — Oil and Gas. That includes the right to use the land that contains the mineral resources, unless those rights include more than the right to explore for natural resources. However, this scope exception does not apply to leases of equipment used to explore for oil and gas.
Given the equipment-intensive nature of oil and gas enterprises, further complicated by wide ranging geographically-dispersed operational environments and complex supplier relationships, energy sector entities face many challenges regarding implementation of new lease accounting standards.
