Oil and Gas Industry

Even though the impact of IFRS is felt along the entire oil and gas value chain, many of the key differences and options are greatest at the exploration and evaluation phase.

Key Impact Areas
Full cost accounting is allowed to continue under IFRS 6 – Exploration and Evaluation of Mineral Resources (IFRS 6) but only for the exploration and evaluation phase. This will require companies to identify and account for pre-exploration, exploration and evaluation and development costs separately. In addition, asset retirement obligations measured under IFRS may be subject to greater volatility as IFRS requires the use of current interest rates at each reporting date to determine the obligation. Impairment testing under IFRS will likely lead to more frequent recognition of impairments than under Canadian GAAP since IFRS uses discounted cash flows to assess whether an impairment exists.

Proposed IFRS 1 Amendment
The IASB is currently proposing an amendment to IFRS 1 whereby full cost oil and gas companies may elect, at the date of transition to IFRS, to measure exploration and evaluation assets at the amount determined under an entity’s previous GAAP. They may also elect to measure oil and gas assets in the development and production phase by allocating the amount determined under an entity’s previous GAAP to the underlying assets on a pro-rata basis using reserve volumes or reserve values as of that date. The entity shall than test exploration and evaluation assets and assets in the production and development phases for impairment at the date of transition. This amendment is expected to be approved in the summer of 2009.

To find out how MNP can help you make the transition to IFRS, please contact your local MNP advisor or call Jason Kingshott, CA, at 1.877.500.0792.