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For this project, students will perform an analysis of two public E&P companies of your choice.Your choices must be one company that follows the successful efforts method of accounting, and the other must follow the full-cost method.
Students will download the most recent Annual Report on Form 10-K, and perform a review of the oil and gas disclosures and results of the company. The project will include a summary of the company’s business andproperties,and its oil and gas reserves. Cite the source of your information, use snipping tools when appropriate, or create graphs if necessary.
The general outline and topics to address are as follows:
- Business, Properties and Industry Guide Disclosures (Ch 17)
Major questions to summarize:
- Discuss the business purpose of the company.
- Are they integrated, independent, etc.?
- Where do they conduct their business geographically?
- Do they have separate operating segments?
- Were there significant changes to the business during the most recent year?
- How do they compete? How do they describe their competitive environment?
- Proved Reserves: What are their proved reserves as of the most recent year end?
- What are the proportions of oil and natural gas?
- What are the proportions of Proved Developed and PUD?
- How are the reserves prepared, i.e. do they use a third party to perform a reserve audit? If so, who is the auditor, and what did they do?
- Oil and Gas Production, production prices and production costs.
- Attach appropriate schedules, briefly discuss.
- Drilling and other exploratory and development activities: how many wells have been drilled over the last three years?
- Development wells
- Exploratory wells.
- What were the respective success rates?
- Oil and gas properties, wells and acreage.
- Attach appropriate schedules, and briefly discuss operations.
- How many gross and net wells, etc.
- Attach schedules of developed and undeveloped acreage;
- Required Disclosures (Ch 16)
Major points of analysis:
- What method of accounting is used by the company?
- Do they separately disclose Proved and Unproved properties on the balance sheet? How much is each category?
- How will capital costs be disposed of in the financial statements?
- Any detailed information about the capitalization of exploratory well costs?
- Review the Financial Statements: Supplemental Disclosures (Ch 16), ARO (Ch 10), and Impairments (Ch 11)
Major points of analysis:
- Impairments and analysis.
- Discuss any significant impairments.
- Any significant acquisitions or divestitures in the last year?
- Any disclosure of asset retirement obligations and environmental costs?
- Attach schedules or disclosures.
- Supplemental Disclosures.
- List the supplemental disclosures provided by your company, and attach disclosures for the most recent year.
- Reserve Ratios (Ch 17)
- Calculate the following reserve ratios for the most recent period presented:
- Reserve replacement
- Reserve life
- Net wells to gross wells
- Average reserves per well;
- Average production per well.
- Calculate the following reserve costs ratios for the periods presented:
- Finding cost ratios.
- Lifting cost ratios.
- DD&A per BOE
- Calculate the following reserve value ratios:
- Value of proved reserve additions per BOE
- Value added ratio.
- MD&A – Capital Expenditures and Critical Accounting Policies
- Find the discussion of capital expenditures, most likely within the Capital Resources and Liquidity section.
- Summarize capitalized expenditures by type, area, etc. if possible given the data presented.
- Compare capitalized expenditures to the supplemental disclosure of costs incurred. Comment on any findings.
Companies have to disclose the accounting policies that require the most management judgement, and which they believe are most critical to their company.
- What are the critical accounting policies mentioned in this MD&A section of the 10-K?
- List the critical accounting policies that relate to oil and gas operations.
- Briefly describe or summarize those policies and why they are important or “critical”?
- News Release
- Find the press release that announces the results of operations or the reserves for the most recent year presented in the Form 10-K. Find the discussion of reserve replacement ratio and finding and development cost – compare your calculation to the company’s, and discuss your findings.