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4 HASKINS & SELLS January Accounting for Oil Producers By PAGE LAWRENCE, Manager, Kansas City Office MA N has, through all the ages, in his constant search for hidden treasures, dug deeply into the earth. Petroleum, one of the most valuable of the treasures of the earth's storehouse, has been known to man since before recorded history. Its wonders are described in the most ancient legends. It has been said that the Arabs carried the liquid treasure from the famous springs of Hit on the River Euphrates to their imperial city, and with it lighted the lamp of Aladdin. The accountant must apply the principles of accountancy in recording the values of many undertakings. To do this successfully, he must know the physical aspects of the operation. It is indeed a stupendous task which confronts the accountant to know something of the physical components of all the operations of our commercial world. He succeeds by applying general principles to particular problems. The production of crude petroleum is a mining operation, and as such comes under the established procedure for recording the accountability for wasting assets or values. It is recognized that, in particular, mining accounts must serve three purposes: Record development, which is really construction, record production, and costs of operation. By applying, therefore, the principles, which we have learned by experience and training, governing the requirement of establishing a true cost to make, we find that the accounting requirements of an oil producer contain no profound and unknown theories of accountability, and that during development the accounts should be so drawn as to establish the equation: Material + Labor + Burden = Cost of Development. The product comes from the well ready for delivery or sale. Thus the producer's accounts recording cost to operate are simple and will be so drawn as to establish costs of "lifting" and careful statistical records of oil produced and sold. Before income and excess profits taxes became such an important factor to the business world, it was considered unnecessary to carefully detail the construction costs of the oil producer. He was content if he knew the unitemized cost of a lease or well, against which he figured that the production from the well would, in a certain period, "pay out" the investment, and this returned, the oil producer operated thereafter on "velvet." The producer's desire to establish comprehensive and accurate records, both as to development and production, and the necessity of compliance with the federal income tax law and regulations of the United States Bureau of Internal Revenue, have influenced the accounting methods of the oil producers. And notable improvements have been made in records, both accounting and geological, in recent years. In many States especial laws are found in the statutes giving rights to mining corporations in the manner of payment for capital stock. The legal fiction allowing a prospector to value the "hole in the ground" for any desired sum necessary to make his company's capital stock full paid and nonassessable, although such value be immediately contradicted by the donation to the company of shares to be sold, in most cases, at a discount, has been used in the formation of corporations for the production of petroleum. It is important that the auditor and accountant should fully set forth the exact particulars of method of capital stock issue and payment. The records and entries
Object Description
Title |
Accounting for oil producers |
Author |
Lawrence, Page |
Subject |
Petroleum industry and trade -- Accounting |
Office/Department |
Haskins & Sells. Kansas City Office |
Citation |
Haskins & Sells Bulletin, Vol. 04, no. 01 (1921 January 15), p. 04-08 |
Date-Issued | 1921 |
Source | Originally published by: Haskins & Sells |
Type | Text |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Libraries. Accounting Collection |
Date-Digitally Created | 2009 |
Identifier | HS Bulletin 4-p4 |