By Keith A. Arner, CPA, CVA, Partner and Andy Griffin, CPA, Supervisor
During the mad dash for deep shale acreage, when exploration and production companies like Chesapeake, Gulfport, Ascent, and others were acquiring leases, many independent producers in the Utica Shale region sold their deep acreage rights. For several years, these independent producers watched from the sidelines, sometimes just breaking even while operating their shallow wells in a very tough environment for commodity prices.
Now, time has passed and many of the larger exploration and production (E&P) companies, due to their large overhead, are unloading their acreage and wells because they are not able to economically produce in the current market. However, many independent smaller producers have found that they are able to produce economically — by observing and studying the processes of the larger companies and benefiting from the new technologies those companies developed over the years.
To use a football analogy, independent producers have studied the offense and watched the game film, and are now coming off the sidelines and getting back in the game.
At this point, any E&P company will find that, in order to obtain financing or enter into credit facilities with financial institutions, one of the requirements is usually going to be a set of financial statements that follow generally accepted accounting principles (GAAP). GAAP requires several items and adjustments that are somewhat unique to the oil and gas world. As we help producers with their financial statements, the following questions usually come up:
• What’s this “asset retirement obligation” I keep hearing about?
• Why do I need to record any accrued production? Payments are usually two to three months behind in the oil and gas world.
• Do I really need to spend the money to get a reserve report from an engineer?
• My banker told me we’ll need financial statements with footnotes and disclosures? What does that mean? Am I disclosing everything that needs to be in there?
• This is the first year we entered into any hedging transactions – where do these go on our books?
We are going to answer each of these questions in upcoming blog posts, so search our blog under the Category “Oil & Gas.” You can also subscribe to our newsletter or contact us for more information about our oil and gas services and experience.
Hall, Kistler & Company has been helping producers in the oil and gas industry since we opened our doors in 1941. We know what it takes to produce proper GAAP financial statements for oil and gas companies and can provide guidance along the way. Let us help when you are coming off of the sidelines and BACK INTO THE GAME.