Accounting Treatment in the Oil & Gas Industry
“Make your team feel respected, empowered and genuinely excited about the company’s mission.”
As an Accountant in the Oil and Gas industry, you may spend a great deal of time analyzing accounting data, reconciling general ledger accounts and trying your hardest to listen very close in meetings as you try to figure out the many acronyms that are flying around in converstations. I'm here to encourage you to not be afraid to ask those questions. The way I see it, the more you know about your role the bigger the contribution is to the team.
The process in which production cost is incurred generally ties back to the maintenance or opportunity to increase production activities on a well. After a well has been completed, and flow lines, heater treaters, separators, storage tanks, etc., have been installed, production activities begin. If you are an accounting professional presently working within the industry all of the production expenses are key to cost control for producers and operators. Production activities involve lifting the oil and gas to the surface and then gathering, treating, processing, and storing the oil and gas.
Production cost is defined as those cost incurred to operate and maintain an enterprise's wells and related equipment and facilities, including depreciation and applicable operating costs of support equipment and facilities and other cost of operating and maintaining those wells and related equipment and facilities. They become part of the cost of oil and gas produced.
The accounting role you are in today speaks volumes because your skills and knowledge matters for many reasons. What remains important in an accounting role, undeniably, starts with understanding your industry and this process is generally a hands on learning curve? But this learning curve should not keep the accountant from showing initiative and inquiring from management when an assigned task is unclear. Production cost has it's challenges because the accountant must be aware of how cost is attributable to wells, directly or allocated.
Here are some examples of production-related cost and how cost are assigned:
Directly Attributable Costs:
These examples are just a few of what an accountant must consider in their roles each day. When investing in companies involved in the exploration and development of oil and natural gas reserves, company analysis should include recognizing which accounting method a company follows. The development of extensive policies and procedures can support the professional accountants and managerial team with monthly responsibilities and meeting company expectations.
Source: Fundamentals of Oil and Gas Accounting
It's Time To Listen to What Your Budget Can Tell You
As a business owner you may be challenged with identifying the best plan for your business structure. When it comes to budgeting, let's be clear that it is different when compared to a long-range planning. One important difference is the time period involved. The maximum length of a budget is usually a year, and budgets are often prepared for shorter periods of time, such as a month or a quarter. In contrast, long-range planning usually encompasses a period of at least five years.
A second significant difference is in emphasis. Budgeting focuses on achieving specific short-term goals, such as meeting annual profit objectives. Long-range planning, on the other hand, identifies long-term goals, selects strategies to achieve those goals, and develops policies and plans to implement the strategies. To choose a strategy that will work best for your business starts with being realistic as possible. A budget can be used to indicate some of the following:
The final difference between budgeting and long-range planning relates to the amount of detail presented. Budgets, can be very detailed. Long-range plans contain considerably less detail. The primary objective of long-range planning is to develop the best strategy to maximize the company's performance over an extended future period.
Your success is what matters to Fontenot & Associates Solutions LLC. It's never too late to get started -- visit our website today to learn more.
Without continual growth and progress, such words as improvement, achievement, and success have no meaning. – Benjamin Franklin
“Ideas are easy. Implementation is hard.” – Guy Kawasaki, co-founder Alltop
Let's assume that you have been getting away with creating or maintaining a budget thus far and see no need to make the additional time and create one. But, what about the two o'clock meeting next week you have with a potential partner or investor? How will you show them the potential growth of your company? A budget is a great way to display your businesses objectives and goals to a third party. So, why wouldn't you take the time to create an exercise this important?
Research shows the primary benefits of budgeting have been identified as follows:
Fontenot & Associates Solutions LLC can develop an extensive guide for your key Accountant, to ensure the development and detail support for the budget is accurate. A budget is only as accurate as the data used. Visit our website today to schedule your consultation - today!
The life of a business owner brings along the duty to wear many hats each day. Just think, you must juggle the ideas of new projects, the color selection of your office, customer service, the business attire culture, marketing and of course the finances of your business. Finances are the critical aspect of your business and everything else follows suit, wouldn't you agree. If the finances are not managed, reviewed, outlined and budgeted the day to day operations will be a bit more challenging to sustain in a competitive market.
Now is a great time to learn more about budgeting and expand on the basics of what it really means to a business minded individual just like you. Budgeting has been a way of life for many of us. Think back -- as a student, you budgeted your study time and your money. Governmental agencies budget revenues and expenditures. Businesses use budgets in planning and controlling their operations. Through budgeting, it should be possible for management to maintain enough cash to pay creditors, to have sufficient raw materials to meet production requirements, and to have adequate finished goods to meet expected sales.
A budget is defined a formal written statement of management's plans for a specified future time period, expressed in financial terms. It is known to represent the primary method of communicating agreed-upon objectives throughout the organization. It promotes efficiency and serves as a deterrent to waste and efficiency. Accounting information makes major contributions to the budgeting process. Just think, from the accounting records companies can obtain historical data on revenues, costs, and expenses. These forms of data are helpful in formulating future budget goals.
It is time to ask yourself as a business owner, how you plan to measure success? How will you plan ahead for the business? The budget itself, and the administration of the budget, however, are entirely management responsibilities. A great start to the success of this process is by establishing an extensive policy and procedures guide to ensure those responsible for gathering the details of what management needs for reporting and compliance is accurate and retrievable.
It is never to late to get started! Success is in the eye of the beholder and Fontenot & Associates Solutions LLC is available to get you started. Visit our website today and join our mailing list to ensure your getting the information you need directly into your inbox.
“Success is walking from failure to failure with no loss of enthusiasm.” – Winston Churchill
Can we all agree that debt is just one of those things that sort of creep up on you? In the beginning phase you feel in control of it all but all along the way you start to notice things like -- invoices are not being paid, revenue is not be posted to the correct accounts or a vendor is being overpaid due to duplicate payments. These are all errors that can and will allow for debt to become your number one priority in business instead of the least concerned aspect of the business as a whole.
The first moment many business owners think about the word "debt" is when they are deciding if a business-line-of credit is right for them are when completing their first bank loan application for their business after already consuming huge amounts of debt. While the moment of creating business debt may be inevitable, Fontenot & Associates Solutions, LLC is here to share a few tips on how to handle it and stay on track.
In addition, business owner's should consider determining their debt ratio before committing to more debt. The current formula to this equation is Debt Ratio = Total liabilities/Total Assets. The debt ratio should be compared to competitors and industry averages. Industries that have stable earnings can handle more debt than industries that have cyclical earnings. These are the evaluations business should have consistently in order to know what needs to be improved. If as a business owner, you are unsure of how much of incoming cash flow is used to pay liabilities each month -- than you are to far away from the reality of your business.
One of the key tools to improve this starts with implementing extensive policies and procedures. These procedures would be designed not only to ensure accuracy from the staff handling the day to day finances but used also as a great reference tool for management to understand more of the details with-out being hands on into the day to day details. It's never to late to get started with improvements -- choose to start yours today!
If you know of a business seeking to identify the allocation of their cash flow and/or improve current processes, Fontenot & Associates Solutions, LLC is here to support with their business needs.
“There’s lots of bad reasons to start a company. But there’s only one good, legitimate reason, and I think you know what it is: it’s to change the world.” – Phil Libin, CEO Evernote
My mission is to offer the best accounting and operations solutions and tips for entrepreneurs and small to mid-size companies worldwide seeking to close their process gaps with actual solutions.