Accounting principles for the extraction phase applicable to oil and gas operators in Vietnam

Accounting principles for the extraction phase applicable to oil and gas operators in Vietnam (Internet image)

Clause 2, Article 8 of Circular 107/2014/TT-BTC stipulates the accounting principles for the extraction phase applicable to oil and gas operators in Vietnam as follows:

- Extraction costs are composed of all of costs allocated directly or indirectly, or incurred, in the crude oil and natural gas extraction process provided in particular oil and gas agreements, even including administrative overhead costs allocable to extraction costs under terms and conditions of the oil and gas agreement. The extraction costs may include:

= Costs of operation and maintenance of necessary facilities, scheduling and direction thereof;

= Costs of oil and gas flow measurement, well testing, flow assurance and collection;

= Costs of processing, storage and transportation of crude oil and natural gas from oil and gas basins to transit stations;

= Administrative overhead costs allocated to other oil and gas extraction activities;

= Costs of clearing for closure of oil and gas extraction sites;

= Other costs directly related to oil and gas extraction operations.

- Where the oil and gas agreement prescribes the following earnings recorded as decreases in oil and gas extraction costs, the O&G Operator is entitled to do so in accordance with the oil and gas agreement (after fully discharging its obligations to the State Bank in accordance with laws and regulations where applicable):

= Earnings derived from the produced oil and gas which can be used for offsetting oil and gas extraction costs;

= Earnings derived from insurance or indemnity directly related to the oil and gas extraction process;

= Earnings derived from subletting of assets to third parties which are directly related to the oil and gas extraction process;

= Earnings derived from liquidation of assets directly related to the oil and gas extraction process;

= Other income directly related to oil and gas extraction operations.

- On a regular basis, the O&G Operator must provide margins to the host country (represented by PVN) as the reserve fund to secure financial obligations concerning clearing of production wells and restoration of the original site which are charged to extraction costs. Where the amount of money set aside for that reserve fund is greater than actual costs incurred from production well clearing and abandonment, part of the fund which is not used up shall be recorded as a decrease in oil and gas extraction costs (if all costs are not fully recovered), or reflected as an amount payable to parties to the oil and gas agreement.

- When the validity term of the oil and gas agreement ends, the O&G Operator must keep final accounts of extraction costs and those costs which have already been recovered. Positive difference between the amount of oil and gas extraction costs in one side and the amount of costs actually recovered in the other side shall be recorded as a decrease in portions of capital contribution made by contracting parties.

- The O&G Operator shall consolidate and keep track of details of recoverable oil and gas extraction costs in accordance with particular oil and gas agreements. The O&G Operator can divide the Account 248 – Oil and gas extraction costs – into secondary or tertiary accounts where appropriate for its managerial requirements. The O&G Operator can create a secondary Account to separately keep track of capitalized costs and costs incurred during the accounting period at the oil and gas extraction or production stage.

More details can be found in Circular 107/2014/TT-BTC, effective from January 1, 2015.

Thuy Tram

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