How to spot creative hydrocarbon accounting

April 7, 2008 4:56 AM

I'd like to understand the difference between "equity-accounted entities" and "subsidiaries" in oil company reserves replacement reports, and how to spot if the distinction is being used to mask underperformance in hydrocarbon replacement.

If the oil companies can't replace what they find, their production can't be sustained. Neither can their share price - which presumably accounts for how fiendishly hard it is to figure out from company reports what should be a fairly simple statistic.

Their reports all make a lot out of the difference between "equity-accounted entities" and "subsidiaries". I've got a feeling it is to do with disguising (self evidently) unsustainable acquisition based reserve growth from (allegedly) more sustainable exploration based growth (so called "drilling for oil on Wall Street").

Can anyone tell me the difference between an "equity-accounted entity" and a "subsidiary" in oil company reserves reports, and how that distinction can be used to present artificial reserves growth as real growth?

(While I appreciate all answers, I can guess as well as anyone else - I'd prefer an answer from someone qualified in hydrocarbon accounting, or at least for you to flag if you are guessing).

(Sorry - couldn't find a "Finance and Economics" category)

posted by falcon to work & money (2 comments total)

Are you looking in the 10-K. They pretty obviously lay out discovered additions to reserves and purchased additions to reserves.

Equity Accounted = Not Consolidated - not in the reserve report, line item on the P&L and B/S
Subsidiary = Consolidated - in the reserve report.

At least in the US & Canada

I don't think you can fiddle reserves with consolidation games. Too obvious. SEC would write you some exciting little letters.
posted by JPD at 9:39 AM on April 7

Yeah, equity v. subsid = unconsolidated v. consolidated. For oil/gas reserves accounting refer to FASB 69
posted by fourstar at 6:33 PM on April 7