As far back as June 2007 the Australian Securities Exchange (ASX) proposed amending its listing rules to introduce minimum standards for oil and gas exploration and production companies to report their reserves and resources. Although amendments have not yet occurred, the ASX are reviewing recent developments within the industry as well as in other jurisdictions and later will look further into the possibility of amending their listing rules.
On a global scale, the International Accounting Standards Board (IASB) have released a discussion paper about minerals and oil and gas reporting which has been taken up by the Australian Accounting Standards Board (AASB). The Australian Board are seeking comments and submissions on the IASB paper by 2 July 2010.1
The IASB’s discussion paper is the first step toward a possible International Financial Reporting Standard (IFRS) for extractive activities in the minerals and oil and gas sectors and would replace the existing IFRS 6 (Exploration for and Evaluation of Mineral Resources) which was developed as an interim measure. Any international standard which was developed would be incorporated into Australia’s accounting standards because of current AASB’s policy.
This investigation into reporting reserves is important because the comments and submissions received may form the basis of any international standard on the topic.
The detail about which comments are sought include whether the recommendations set out in the IASB paper would improve the financial reporting of entities engaged in extractive activities. In particular, the following issues are raised for specific comment:
- whether any international standard should only apply to upstream activities
- whether a single accounting and disclosure model should apply for both mining and oil and gas
- how mineral and oil and gas reserves and resources should be defined
- the recognition of legal rights such as exploration rights or extraction rights as ‘assets’ which are referred to as mineral or oil and gas ‘property’
- selection of the unit of account for a minerals or oil and gas ‘property’
- the basis for the measurement of minerals or oil and gas ‘property’
- the testing of exploration ‘properties’ for impairment on some basis other than International
Accounting Standard 36 - Impairment of Assets
- whether objectives for disclosure of information should be to enable users of financial reports to evaluate:
- the value attributable to an entity’s minerals or oil and gas ‘properties’;
- the contribution of those assets to current period financial performance, and
- the nature and extent of risks and uncertainties associated with those ‘assets’.
- whether the types of information that should be disclosed include:
- quantities of proved reserves and proved plus probable reserves, with the disclosure of reserve quantities presented separately by commodity and by material geographical areas
- the main assumptions used in estimating reserves quantities, and a sensitivity analysis
- a reconciliation of changes in the estimate of reserves quantities from year to year
- a current value measurement that corresponds to reserves quantities disclosed with a reconciliation of changes in the current value measurement from year to year
- separate identification of production revenues by commodity and
- separate identification of the exploration, development and production cash flows for the current period and as a time series over a defined period (such as five years).
- disclosure of payments made to governments on a country by country basis
Later in 2010 the IASB will consult publicly about the inclusion of this topic on its agenda. Any comments received in relation to the discussion paper will assist the Board in deciding whether or not to include this issue on its agenda. If the IASB does include the project then it will use the discussion paper and any comments it receives as the basis for its initial deliberations and will then decide whether to release an exposure draft of the international standard or whether its own discussion paper is required.
Further details can be found in the AASB’s discussion paper which can be obtained from the AASB website at http://www.aasb.gov.au.
Round table discussions will be held by the AASB to further explore these issues. Locations and dates are yet to be released but details will be available on the AASB website at http://www.aasb.gov.au/News/Upcoming-events.aspx.