{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/815/932/#55-implementation-guidance-and-illustrations","source":"FASB Accounting Standards Codification, Basic View","usage":"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.","topic":"815","topic_title":"Derivatives and Hedging","subtopic":"815-932","subtopic_title":"Extractive Activities—Oil and Gas","section":{"number":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":"Gas-Balancing Arrangements","paragraphs":[{"citation":"815-932-55-1","para":"55-1","html":" A gas-balancing arrangement is a situation where Entities A and B are partners in a gas well. During the current period, Entity B may decide not to sell any gas because it does not have a purchaser or because market conditions are unfavorable. Accordingly, Entity A (the overtaker) agrees to take all the gas production for the period and sells it to its customer. In the future, Entity B has the right to take more gas than its interest would otherwise allow to make up for Entity A's overtake. Alternatively, A may make payment in kind (using gas from a different well) or pay cash to Entity B. The terms of a gas-balancing arrangement should be analyzed to determine whether it meets the definition of a derivative instrument under Topic 815. In particular, the option in the agreement may not meet the criterion in paragraph 815-10-15-83 (as further clarified by the guidance in paragraphs ) with respect to a notional amount, even though it may meet the criterion in paragraph 815-10-15-99, in part because the gas is readily convertible to cash. Even if the gas-balancing arrangement meets the definition of a derivative instrument, the cash price used in settlement may result in the derivative instrument always having a fair value of zero. Nevertheless, the disclosures specified in Section 815-10-50 would still be required. The option feature of the agreement, if it meets the definition of a derivative instrument, could not qualify for the normal purchases and normal sales exception in paragraph 815-10-15-15 because the gas-balancing arrangement is an option contract and it is not probable at inception and throughout the term of the arrangement that the contract will not always settle net and will always result in physical delivery.