# ASC 470-932-25: Debt — Extractive Activities—Oil and Gas — 25 Recognition

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/470/932/#25-recognition)

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## ASC 470-932-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/470/932/#25-recognition)

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##### [470-932-25-1](https://asc.understandingaccounting.org/asc/470/932/#470-932-25-1)

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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:

1.  a
    
    Entities seeking supplies of oil or gas sometimes make cash advances to operators to finance [exploration](https://asc.understandingaccounting.org/glossary/e/#exploration "Exploration involves both of the following: Identifying areas that may warrant examination Examining specific areas that are considered to have prospects of containing oil and gas reserves, including drilling exploratory wells and exploratory-type stratigraphic test wells.") 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.
    
2.  b
    
    Funds advanced to an operator that are repayable in cash out of the proceeds from a specified share of future [production](https://asc.understandingaccounting.org/glossary/p/#production "Production involves lifting the crude oil and natural gas to the surface, extracting saleable hydrocarbons, in the solid, liquid, or gaseous state from oil sands, shale, coalbeds, or other nonrenewable natural resources that are intended to be upgraded into synthetic oil or gas, gathering, treating, field processing (as in the case of processing gas to extract liquid hydrocarbons), and field storage. The oil and gas production function shall be regarded as ending at a terminal point, which is the outlet valve on the lease or field storage tank. If unusual physical or operational circumstances exist, it may be appropriate to regard the terminal point for the production function as: The first point at which oil, gas, or gas liquids, natural or synthetic, are delivered to a main pipeline, a common carrier, a refinery, or a marine terminal In the case of natural resources that are intended to be upgraded into synthetic oil or gas, if those natural resources are delivered to a purchaser before upgrading, the first point at which the natural resources are delivered to a main pipeline, a common carrier, a refinery, a marine terminal, or a facility that upgrades such natural resources into synthetic oil or gas.") 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](https://asc.understandingaccounting.org/asc/360/932/#360-932-55-2), are commonly referred to as production payments. The two types differ in substance, however, as explained in that paragraph.