ASC 470-932

Extractive Activities—Oil and Gas

470 Debt

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In brief

IntermediateRecognition Industry-specific Debt and equity

This Subtopic governs how oil and gas entities account for certain "conveyance" transactions that are, in substance, borrowings repayable in cash or its equivalent. Under 470-932-25-1, such arrangements must be recorded as a payable by the operator receiving the funds and a receivable by the party advancing the funds, rather than as a sale or conveyance of mineral interests.

Key points (5)

Transactions labeled conveyances that are in substance borrowings repayable in cash or its equivalent shall be accounted for as borrowings (470-932-25-1).
Cash advanced to an operator to finance exploration, repayable by offset against purchases of oil or gas discovered or in cash if insufficient production occurs by a specified date, is a receivable to the lender and a payable to the operator (470-932-25-1(a)).
Funds advanced repayable in cash out of proceeds from a specified share of future production until the advance plus interest at a specified or determinable rate is repaid are accounted for as a borrowing (470-932-25-1(b)).
Both arrangements are commonly called production payments, but they differ in substance from the production payments described in 932-360-55-2, which are not borrowings (470-932-25-1(b)).
The Subtopic's scope follows the Overall oil and gas Subtopic scope in Section 932-10-15 (470-932-15-1).

For students. The classic trap is treating every "production payment" alike: if the advance must be repaid in cash (with interest) out of future production proceeds, it is debt, not a sale of a mineral interest. Compare it against the conveyance-type production payment in 932-360-55-2 to see the substance-over-form distinction.

conveyance production payment in-substance borrowing oil and gas properties advance repayable in cash receivable and payable recognition substance over form

Machine-generated study aid for ASC 470-932. Check the source paragraphs below.

470-932-00Status

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470-932-00-1

The following table identifies the changes made to this Subtopic.

Paragraph	Action	Accounting Standards Update	Date

Production	Amended	Accounting Standards Update No. 2010-03	01/06/2010

470-932-05Overview and Background

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470-932-05-1

This Subtopic addresses accounting for debt by entities in the oil and gas industry.

470-932-15Scope and Scope Exceptions

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Overall Guidance

470-932-15-1

This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 932-10-15.

470-932-25Recognition

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470-932-25-1

Certain transactions, sometimes referred to as conveyances, are in substance borrowings repayable in cash or its equivalent and shall be accounted for as borrowings. Both of the following are examples of such transactions:

a
Entities seeking supplies of oil or gas sometimes make cash advances to operators to finance exploration in return for the right to purchase oil or gas discovered. Funds advanced for exploration that are repayable by offset against purchases of oil or gas discovered, or in cash if insufficient oil or gas is produced by a specified date, shall be accounted for as a receivable by the lender and as a payable by the operator.
b
Funds advanced to an operator that are repayable in cash out of the proceeds from a specified share of future production of a producing property, until the amount advanced plus interest at a specified or determinable rate is paid in full, shall be accounted for as a borrowing. The advance is a payable for the recipient of the cash and a receivable for the party making the advance. Such transactions, as well as those described in paragraph 932-360-55-2, are commonly referred to as production payments. The two types differ in substance, however, as explained in that paragraph.