Upstream Petroleum Contracts Accounting & Auditing Policies and Procedures

Introduction

This training course provides in-depth information on the types of upstream petroleum contracts and what their differences are and what are the main contractual terms participants need to know in order to fully understand all types of Upstream Petroleum Contracts.  The course will comprehensively cover Production Sharing Contracts, Exploration & Production Agreement (E&P) Exploration & Exploitation Contract, License Agreement, and participants will take away essentials elements of these contracts to be effectively used in their own companies. The training course will help participants understand the practical issues involved and the pitfalls to avoid. 

This training course will also develop the essential skills necessary to prepare and evaluate Upstream Petroleum Accounts and to improve the organization’s internal audit function. It focuses on the latest techniques to evaluate Financial; Operational & Social Performance as well as relevant International Financial Reporting Standards (IFRS) relevant for the preparation of accounts. Delegates will therefore be able to prepare financial statements in line with IFRS and make strategic decisions to improve the financial performance of their organization. In addition, the development, monitoring, and continuous improvement of a highly-integrated, internal audit function will aid continued financial success, stability, and growth.

This training course will highlight:

• The fundamental types of Upstream Petroleum Contracts
• The advantages and disadvantages of the different types of Upstream Petroleum Contracts and how it is suitable for specific types of projects.
• Concessions, Production sharing & Risk Service Contract, important details, and suitability for any oil and gas upstream project. 
• The role of JOA in upstream petroleum contracting Conciliation, Mediation and Settlement of Disputes
• Understanding the essentials terms of Unitization and Farm-in, Farm-Out agreements
• How to Prepare Financial Statements in line with IFRS
• The latest international tools and techniques to develop skills of evaluation and performance measurement
• The lessons to be learned from an evaluation of leading international Upstream Petroleum companies
• The different types of audit and the benefits to be obtained from each
• Efficient Planning, Controlling, and Recording of an audit assignment

Objectives

By the end of this course, participants will be able to:

• Gain a full understanding of the different types of Upstream Petroleum Contracts
• Understand the main contractual terms and their differences between the various types of contracts from PSA, Service contracts, and others
• Be aware of the approaches to the negotiation of these contracts
• Incorporate the best terms into these Upstream Petroleum Contracts
• Develop an understanding of the accounting and auditing standards, policies, and practices used by Upstream Petroleum companies
• Improve the relevance and reliability of financial reports to better meet the needs of users
• Review and use publicly available information for benchmarking the business performance
• Understand the role and function of an Internal Audit Department
• Understand audit risk and efficiently plan, control and record an audit assignment

Training Methodology

This is an interactive course. There will be open question and answer sessions, regular group exercises and activities, videos, case studies, and presentations on best practices. Participants will have the opportunity to share with the facilitator and other participants on what works well and not so well for them, as well as work on issues from their own organizations. The online course is conducted online using MS-Teams/ClickMeeting.

Who Should Attend?

This training course is suitable for a wide range of professionals but will greatly benefit:-

• Senior contract negotiators and managers
• Legal managers, legal counsel
• Commercial and business managers
• Contracts administrators, and managers
• Commercial, financial, and insurance professionals
• Project and General Management personnel
• Corporate Accountants, Financial Controllers, Treasury Officers, Management Accountants
• Finance Staff in General Accounting, Payables, Receivables, Inventory, Fixed Assets, etc.
• Joint Venture Accountants and Auditors
• External, Financial and Internal Auditors
• Government Regulators and Auditors
• Financial and Investment Analysts

Course Outline

Day 1: Introduction and Overview of Upstream Petroleum Contracts

• A brief overview of the O&G industry

• Oil and gas terminology

• The legal framework for Upstream Contracts

• Introduction to contract formation

• Key oil and gas terminology

• Oil and gas industry structure

• Relationship between different players in the oil and gas industry

• Phases of the oil and gas industry

• Oil and gas contract fundamentals and legal principles

• Territorial water, continental shelf and United Nations Convention on the Law of the Sea (UNCLOS)

Contracting in the Upstream Sector: Ownership and Licensing

Ownership and exploitation of reserves

• The ABCs of Petroleum Contracts: License-Concession Agreements, Joint Ventures, and Production-sharing Agreements

• Characteristics of upstream contracts

• Commercial realities of the oil and gas business

• Agreement with resource holders

• Ownership of oil and gas

• Risk Service Contracts (RSCs)

• Grant of rights by the resource holder

Host country's legal and regulatory framework and fiscal regime; stabilization

• Role of the host government

• Key Issues in international oil and gas contracts

• Negotiation framework and strategy; objectives of host countries/NOCs and IOCs

 Host Government’s Role in Upstream (Exploration & Production (E&P)) Agreements

• Overview of upstream operations and E&P agreements (types and trends by region)

• Key differences between Production Sharing Contracts (PSCs), concessions, service contracts, and JV contracts

• Role of Host Government in Upstream Contracts

 Day 2: Production sharing contracts (PSC) & Joint Operating Agreements (JOA)

• Different approaches and levels of complexity

• New PSC’s in key jurisdictions

• The role of calculation

• Understanding the formulas

• The non-fiscal legal and contractual terms

• Contractual terms and conditions

• Royalties and taxes

 Commercial terms in licensing and concession agreements

• Fiscal arrangements, license fees

• Four key financial aspects to a PSC:

• Royalty, The R factor

• Cost oil

• Profit oil

• Taxation

• Bonuses, Penalties

• PSC – Cash Flow Distribution

• PSC – CF Distribution Example – Year N+1

• Comparison of Fiscal Systems

Joint Operating Agreements (JOAs)

• What is a Joint Operating Agreement (JOA)?

• Nature, aim, and functions of a joint venture

• Government approval

• Key areas of the JOA

• Purpose and scope: participating interests

Service Contracts, Farm-In and Farm-Out and Unitization - Risk bearing and Non-Risk Bearing Service Contracts 

• Service Contracts

• Risk Service Contracts

• Different model forms – sources

• Risk allocation and insurance

• Master service contracts

Participation Agreements (Farm-in and Farm-out)

• Agreements for farm-ins and farm-outs

• Nature of the farm-out

• The subject matter of the farm-out

• Interest assigned and reserved

• Assignment of interest

 Unitization and Unit Operating Agreements (UUOAs)

• What is unitization?

• Unitization in practice

• Government approval

• Transboundary unitization

 Day 3: Negotiating Production Sharing Contracts 

• Government take

• Production share and cost recovery

• Local content

• Force majeure

• Dispute resolution

• Stabilization and renegotiation provisions  

Negotiation Simulation Exercise

• Negotiation of a PSA with a government entity

• Objective: The objective is to establish what can be achieved in the meeting, what preparation is needed for it, and what strategy should be adopted, and then to pursue this strategy.

• Feedback session

Negotiation of oil and gas disputes

• Importance of negotiation in oil and gas business

• Disadvantages of competitive or positional negotiation

• Principled negotiation between the parties to achieve the best results

Major Accounting & Auditing Issues in the Upstream Petroleum Sector

• The latest Accounting & Auditing Issues facing the sector

• The impact of commodity prices, currency & interest rate fluctuations, and political and environmental developments.

• The impact of financial and accounting issues on Strategic Development and Growth within the sector

• The Annual Reports & Financial Statements of leading international Petroleum companies

• An Overview of IFRS in relation to Upstream Oil & Gas Accounting

• The Role of Auditing

Day 4: Accounting for Revenue & Costs in the Upstream Petroleum Sector

• Revenue Recognition & IFRS 15: Revenue from Contracts with Customers

• Costs in Acquisition, Exploration, Development, and Production

• IFRS 6: Exploration for and Evaluation of Mineral Assets

• Accounting Approaches - The "Successful Efforts" (SE) Method or the "Full Cost" (FC) Method

• Break-Even Oil, Cost Oil & Profit Oil

• Evaluating Profitability of leading international Oil & Gas companies

Accounting for Assets in the Upstream Petroleum Sector

• Reserves & Resources

• IAS 16: Property, Plant and Equipment

• Depletion, Depreciation & Amortisation (“DD&A”)

• IAS 36: Impairment of Assets

• IAS 37 – 39: Provisions, Contingent Liabilities, and Contingent Assets; Intangible Assets and Financial Instruments

• Evaluating the Assets & Reserves of leading international Petroleum companies

Day 5: Creative Accounting, Corporate Governance & Auditing

• Creative Accounting

• Corporate Governance

• Published Financial Statements

• The Role of the Board & Audit Committee

• External Auditing - reporting to investors in the Oil & Gas industry

• Internal Auditing - Defining and Developing the Internal Audit Process

The Internal Audit Function

• Establishing the Roles & Staff within the Internal Audit Dept.

• The Various Types of Audits

• Planning & Commencing Internal Audit Examinations

• Controls & Substantive Tests

• Communicating Audit Findings

• The Audit Exit Conference Meeting & Post-Audit Reviews