Key Accounting Considerations for Oil and Gas Companies Dubai, UAE
As you may know, the UAE’s per capita income and national economy have benefited greatly from the oil and gas sector. Other industries receive investments from the oil and gas sector’s resources. As a result, the oil and gas companies Dubai, UAE draws in foreign investment and adds to the country’s sophisticated infrastructure. Because it contributes more to other businesses, the oil and gas sector’s portion of the GDP is continuously declining. To expand its refining capabilities, the UAE’s oil and gas market is anticipated to invest heavily in this area. The oil and gas sector will be more driven by this investment than by alternative energy sources.
Acquisition, exploration, development, and production activities are all part of oil and gas accounting. Production, development, and exploration are the main endeavors that have significant capital expenses in common. There are additional costs associated with moving materials via tankers and pipelines. Many producers and utilities look for long-term contracts to sustain the necessary infrastructure, especially off-shore, because it is difficult to move. The following macroeconomic factors have a substantial impact on the oil and gas industry:
- Prices of commodities
- Variations in currency
- The risk of interest rates
- Developments in politics
Prior to making the important decisions, each of the following actions needs to be taken into account.
1. Upstream: Resource exploration efforts such as mining and offshore drilling
2. Midstream: The tasks include moving and processing the mined resources.
3. Downstream: Refining the collected raw materials
Aspects of Accounting
Revenue Recognition: The following methods are used to recognize revenue:
• Identify the performance requirement and the contract.
• Indicate the transaction price and apply it to the contract’s performance obligation.
• Record revenue as soon as the organization fulfills its commitment.
Inventory: For financial reporting purposes, businesses must recast reported inventory balances in accordance with weighted average or FIFO standards.
Exploration and Evaluation Assets: The costs that oil and gas businesses bear while searching for and assessing mineral resources are known as exploration and evaluation expenditures.
Asset Impairment: When an asset’s carrying value is more than its recoverable amount, it is considered impaired.
Reduced Value, Amortization, and Depreciation:
• Depletion occurs when a business actually uses up all of the natural resources in an area.
• The process of spreading out the cost of material assets over their useful lives is called depreciation.
• The deduction of capital costs over a predetermined time period is known as amortization.
Important Things to Remember
Embedded Lease: As part of their business operations, oil and gas companies use service contracts. Companies must report leases as right-of-use assets supporting an economic benefit in accordance with the new IFRS 16 Leases. Therefore, it is imperative that oil and gas businesses review their service agreements to determine if embedded leases are there.
Leased Assets: Bundled contracts are frequently used to engage material assets, such as oil rigs, in oil and gas activities. The labor and other supplies required to operate the asset will frequently be included in this contract. The new guidelines require businesses to determine the independent worth of each contract piece, lease and non-lease, if any portion of those agreements fit the definition of a lease.
Equipment Leasing: In order to employ subleased equipment, such as drill rigs, oil and gas companies in Dubai frequently enter into joint ventures or operational agreements with other businesses. Organizations will have the option to report these shared embedded leases on a gross or net basis under these joint operating agreements.
Renewal of License: An oil or gas service may decide to renew a lease or not for a number of reasons. New strategic objectives or shifting economic conditions frequently call for the use of cutting-edge or unique resources. The new standards mandate that enterprises reevaluate the operating and financial classification of leases when triggering events result in changes to them.
It may also be necessary to reevaluate the lease’s right-of-use asset and, consequently, the lease liabilities in response to specific triggering circumstances. Businesses must make sure procedures are in place for reevaluating their leases when these triggering events take place as they strive to comply with the new standards.
Accounting Services for Oil and Gas Companies Dubai by IBR GROUP
We offer the oil and gas industry the best possible specialized service because we are a team of licensed professionals. To assist our clients, we fully give our finest talents. We guarantee proper accounting systems by being aware of the financial limitations. We promote strategic actions that are tax-effective and help businesses reach their objectives. We always have the best answers accessible.
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