Oil Industry & Accountants
With a shortage of accountants specializing in the oil and gas industry, EnCana Oil & Gas (USA) Inc. paid $20,000 to partner with the business school at the University of Colorado, at Denver, (UCD) for an oil and gas accounting course. EnCana USA is a subsidiary of Canadian giant EnCana Corporation located in Denver, according to the Denver Business Journal. The company is paying for the books for the course.
The course is unique as “a specific industry has come to us and asked for a specific course,” according to Ann Martin, the associate professor teaching UCD’s oil and gas accounting course. If this first class proves to be successful, it may be offered as an elective in the future. Martin has been teaching at the UCD business school since 1994 and learned the industry working for a small oil and gas firm in Kansas as an accounting secretary.
|Thousands of executives with financial reporting responsibilities use the Comperio on-line library to access the type of information and interpretive guidance PricewaterhouseCoopers' own professional audit staff use around the world. Key content areas include guidance from the FASB, EITF, PCAOB, SEC, and others as well as PwC's interpretive guidance. Get more information and sign up for a complimentary 30-day trial.|
UCD initially expected 10 to 15 students, but 27 students signed up for the class that started January 23rd. Although EnCana USA has given financial support to other schools such as the Colorado Mountain College in Rifle, and Western Wyoming Community College in Rock Springs, Wyoming, this is the first support they have given for accounting classes. No other school in Colorado offers specialized accounting classes for the oil and gas industry.
Scott Hillman, executive director of the Council of Petroleum Accountants Societies, said the problem of industry-specialized accountants is a function of the industry’s boom-and-bust cycles. Hillman told the Denver Business Journal, “A lot of younger folks have seen mom or dad or grandma or grandpa go through a lot of cycles. We go through ups and now is a great time to be in the industry. The ‘80s were not a great time to be in the industry. The younger folks haven’t gone through it, but they’ve seen friends and relatives go though it and it makes them skittish about the industry.”
Also, the average age of employees in the oil and gas industry is 49, reported by a 2004 American Petroleum Institute survey, according to the Denver Business Journal. Doug Hock, EnCana USA spokesman, said that 42 percent of the company’s aging workforce is due to reach retirement age within the next five years.
Hillman said that accountants specialized in other fields cannot easily fill needs in the oil and gas industry. They have to be trained after hiring, at company expense. Scott Craig, EnCana USA’s college recruiting coordinator, told the Denver Business Journal, to get qualified accountants, it’s "extremely difficult.”
The industry has its own jargon and operating methods and situations, according to the Denver Business Journal. Wells can be operated as joint ventures with multiple owners, operators, and interests. The wells can also be on private or public land, owned by state or federal agencies, with different tax rates for adjacent wells. EnCana USA operates between 7,500 and 8,000 wells in the U.S. alone.
In other industry news, the Wall Street Journal reports that large oil companies have issued a report justifying how they account for their own strategic resources as they think they can “be the best judge of their own stores of oil and gas rather than use a strict formula imposed by the Securities and Exchange Commission. The companies argue that the SEC’s method – intended to provide investors with apples-to-apples comparisons – is archaic and arbitrary, and undercounts the amount of energy on tap for the future,” according to RigZone.com.
This is a complicated issue, according to RigZone.com. “Securities analysts don’t necessarily agree with the SEC’s conservative guidance on how to account for oil and gas in the ground, but they also tend to doubt the companies’ optimistic forecasts of their stores.” On the other side of the issue, “Matthews Simmons (author of “Twilight in the Desert), a Houston-based energy investment banker and among a crowd of forecasters who believe the world is running short on oil, says the SEC rules should be even stricter.”
To be sure, under the current system, “there’s no definitive way to predict how much oil or gas lies in any given field – even industry insiders have described such estimates as being more art than science. While companies would like to show off the best possible numbers, the SEC favors a more conservative approach to protect from placing their bets on inflated numbers that could prove wrong.” RigZone.com reports in a example provided by the Wall Street Journal citing 2004 data, the numbers provided by Exxon Mobil Corporation, the world’s largest oil company, were 30 percent higher than using the SEC formula.
The Wall Street Journal summarized the situation, “Oil production is dropping in the U.S., and about three-quarters of known global reserves are controlled by foreign governments and thus mostly off-limits to Western oil companies. Also, many new projects are in politically unstable areas, or in areas where it is difficult and expensive to drill, such as ultra-deep waters off Africa and the Gulf of Mexico. Longer exploration and production schedules involved in getting that oil also set the bar higher in meeting SEC standards for claiming reserves,” according to RigZone.com.
In more oil industry news, Rep. Richard W. Pombo (R-Calif), chairman of the House Resources Committee, wrote a letter to Interior Secretary Gale A. Norton demanding correspondence, data, and memos on an Interior Department program for “royalty relief” to companies producing oil and gas on federal leases. The New York Times reports the royalty relief would amount to some $7 billion on Gulf of Mexico leases. The program was created under the Deep Water Royalty Relief Act.
Pombo’s letter said the main aim of his investigation was to credit much of the problem to decisions by the Clinton Administration to sweeten incentives in 1998 and 1999. The New York Times reports that royalty relief was supposed to stop when prices got above certain trigger points, but price limitations on some $65 billion in awarded leases were waived by the Clinton Administration.