Unusual oil price fluctuations may impact oil and gas financial reporting
DENVER – When preparing financial statements for 2014, oil and gas exploration companies should consider five key areas that may impact financial statements, according to a recent article by Hein & Associates LLP.
Over the years, the world has become familiar with oil price fluctuations and the impact they have on oil and gas financial reporting. The supply of oil is affected by numerous factors including wars, growing economies, regulations, and new discoveries. In 2014, crude oil prices were cut in half in just a few months. Starting in August, prices began falling and, by year-end, they were at their lowest point in over five years.
With 2014 now behind us, many entities are preparing their financial statements. As oil and gas exploration companies go through this process, it’s important to keep in mind that the unusual fourth quarter could result in major financial reporting issues. According to the Hein & Associates LLP article, there are five areas for oil and gas companies to consider in their 2014 financial statements:
- impairment of oil and gas properties for full-cost companies and successful efforts companies;
- five-year rule on proved undeveloped properties (PUDs);
- liquidity concerns;
- collectability of joint interest billings; and
- derivatives.
The oil price changes in 2014 have created a number of economic conditions that few people could reliably forecast. As energy producers work hard to adjust their business models to this scenario, it’s easy to overlook the impact that these changes may have on 2014 financial statements.