In accordance with the Basic Standard of Enterprise Accounting Standards, the Ministry of Finance issued Accounting Standard for Business Enterprises No. 27 — Oil and Gas Exploration on 2006/2/15, effective as of 2007/1/1.
1. Overview of Guidelines
This standard governs accounting for oil and gas extraction activities, including acquisition of mineral rights, exploration, development, and production.
Applicable Scope
This standard applies to enterprises engaged in oil and natural gas extraction activities within the People's Republic of China. Oil and natural gas extraction activities include exploration, development, and production operations in mining areas.
II. Mining Rights
Recognition of mining rights
Mineral rights refer to the entitlements a company obtains to explore, develop, and produce oil and gas within a specific mining area. Such rights shall be recognized as either intangible assets or oil and gas assets.
Measurement of Mineral Rights
Mining rights shall be initially measured at actual cost upon acquisition. Acquisition-related costs, including appraisal fees, legal fees, and other direct expenses, shall be capitalized as part of the mining rights cost.
3. Exploration Expenditure
Treatment of exploration expenditures
- Drilling and exploration expenditures shall be capitalized before proved economically recoverable reserves are determined.
- • If proven economically recoverable reserves are not confirmed within one year after completion, costs shall be expensed.
- Non-drilling exploration costs should be expensed as incurred.
IV. Development Expenditures and Depletion
Development expenditures refer to costs incurred for development activities aimed at obtaining proved economic recoverable reserves. Such expenditures shall be capitalized and accounted for as oil and gas assets.
Depreciation method
Depletion of oil and gas assets shall be calculated using the production method or the straight-line method. Companies shall select an appropriate depletion method based on the actual conditions of their oil and gas assets; once chosen, the method shall not be changed arbitrarily.
Regulatory Document Attachment
CAS No. 27 — Oil and Gas Exploration (PDF)