# ASC 720-932-25: Other Expenses — Extractive Activities—Oil and Gas — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/720/932/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:10:45.467Z to 2026-09-10T01:10:45.467Z Record version: sha256:0eee9222af5824a6db684e7e56e4ec2d6bcd03fed77a201a74a1203b1437f70c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 720-932-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/720/932/#25-recognition) SEC content: no ##### [720-932-25-1](https://asc.understandingaccounting.org/asc/720/932/#720-932-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:10:45.467Z to 2026-09-10T01:10:45.467Z Record version: sha256:cae56b6aea73bdc019a0c6989c1622d6b8ec8ed59ae86b519ab5bc05fa562c92 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some costs incurred in an entity's oil- and gas-producing activities do not result in acquisition of an asset and, therefore, shall be charged to expense. Examples include: 1. a Geological and geophysical costs 2. b The costs of carrying and retaining undeveloped [properties](https://asc.understandingaccounting.org/glossary/p/#properties "Mineral interests in properties (hereinafter referred to as properties), which include all of the following: Fee ownership or a lease Concession Other interest representing the legal right to produce or a revenue interest in the production of oil or gas subject to such terms as may be imposed by the conveyance of that interest. Properties also include: Royalty interests Production payments payable in oil or gas Other nonoperating interests in properties operated by others. Properties include those agreements with foreign governments or authorities under which an entity participates in the operation of the related properties or otherwise serves as producer of the underlying reserves (see paragraph 932-235-50-7); but properties do not include other supply agreements or contracts that represent the right to purchase (as opposed to extract) oil and gas. Properties are classified as proved properties or unproved properties.") 3. c The costs of drilling those [exploratory wells](https://asc.understandingaccounting.org/glossary/e/#exploratory-well "An exploratory well is a well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir. Generally, an exploratory well is any well that is not a development well, a service well , or a stratigraphic test well.") and exploratory-type [stratigraphic test wells](https://asc.understandingaccounting.org/glossary/s/#stratigraphic-test-well "A stratigraphic test is a drilling effort, geologically directed, to obtain information pertaining to a specific geologic condition. Such wells customarily are drilled without the intention of being completed for hydrocarbon production. This classification also includes tests identified as core tests and all types of expendable holes related to hydrocarbon exploration. Stratigraphic tests are classified as exploratory-type if not drilled in a proved area or development-type if drilled in a proved area.") that do not find proved reserves. Geological and geophysical costs, costs of carrying and retaining undeveloped properties, and dry hole and bottom hole contributions shall be charged to expense when incurred. Costs of carrying and retaining undeveloped properties do not increase the potential of those properties to contain oil and gas reserves. Carrying costs are incurred to maintain an entity's rights, not to acquire those rights. In a sense, they are penalties for having delayed drilling and development activities and, thereby, having delayed potential [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 oil and gas. Because carrying costs do not enhance the future benefits from the entity's properties and other assets, they are charged to expense when incurred.