SFFAS 38 Requires Reporting of Federal Oil and Gas Royalties

The Federal Accounting Standards Advisory Board (FASAB) issued Statement of Federal Financial Accounting Standards (SFFAS) no. 38, which requires the value of the federal government’s estimated petroleum royalties from the production of federal oil and gas proved reserves to be reported in a schedule of estimated federal oil and gas petroleum royalties. SFFAS no. 38, Accounting for Federal Oil and Gas Resources, also requires the value of estimated petroleum royalty revenue designated for others to be reported in a schedule of estimated federal oil and gas petroleum royalties to be distributed to others.

The information will be reported as required supplementary information (RSI) for periods beginning after Sept. 30, 2011. However, it is FASAB’s intent that the information required by SFFAS no. 38 transition to basic information, which is subject to full audit, after being reported as RSI for three years. Before the three-year RSI period ends, FASAB will determine whether the information will transition to basic information through financial statement recognition or note disclosure. SFFAS no. 38 will remain in effect until that determination is made.

Federal proved reserves are the estimated quantities of oil and gas under federal lands that are believed with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. FASAB said that, while these reserves represent assets and ideally would be valued and included in the balance sheet, SFFAS no. 38 instead provides for three years of experimental reporting as RSI.

FASAB said it hopes that by requiring the federal government to report its royalty share of estimated oil and gas production from federal proved reserves and the portion of that share to be distributed to others as RSI, it will gain insight into the challenges associated with valuing these assets and liabilities. RSI is information FASAB requires to accompany basic information; it is unaudited but subject to certain audit procedures specified in auditing standards.

In addition to the values, a discussion of all significant federal oil and gas resources under management by the federal government—including those not yet “proved”—is required to provide context for the reader. FASAB also noted that federal lands contain a variety of natural resources other than oil and gas proved reserves that are not specifically addressed by SFFAS no. 38. The statement does not require or preclude entities from reporting information about other types of federally owned natural resources. FASAB said the statement should be considered in conjunction with SFFAS no. 7, Accounting for Revenue and Other Financing Sources, when applying SFFAS no. 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board, to other types of federally owned natural resources.