# ASC 815-932: Derivatives and Hedging — Extractive Activities—Oil and Gas Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/815/932/) 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): 2026-09-10T01:40:07.746Z to 2026-09-10T01:40:20.826Z Record version: sha256:8cbd4da8cdd50f709ec781cd4b92f081ed0e7340140fbe439c2263c995d9f0e7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-932: Derivatives and Hedging — Extractive Activities—Oil and Gas ### Machine-generated study aids ```json { "summary": "This subtopic addresses whether gas-balancing arrangements between working-interest partners in a gas well are derivative instruments under Topic 815. When one partner (the overtaker) takes more than its share of production, the undertaken partner has a right to make up the imbalance in kind, with gas from another well, or in cash; the terms of each arrangement must be analyzed against the definition of a derivative. Even where the arrangement is a derivative whose settlement price leaves it at a fair value of zero, the Section 815-10-50 disclosures still apply, and the option feature cannot use the normal purchases and normal sales exception.", "key_points": [ "A gas-balancing arrangement arises when one well partner (the overtaker) takes all production for a period and the other partner later has the right to take makeup gas, receive gas in kind from another well, or receive cash (815-932-55-1).", "The arrangement's terms must be analyzed to determine whether it meets the definition of a derivative instrument under Topic 815 (815-932-55-2).", "The option in the agreement may fail the notional amount criterion in paragraph 815-10-15-83 (as clarified by 815-10-55-5 through 55-7), even though it may satisfy 815-10-15-99 because the gas is readily convertible to cash (815-932-55-2).", "Even if the arrangement is a derivative, the cash price used in settlement may cause it to always have a fair value of zero, but the Section 815-10-50 disclosures are still required (815-932-55-2).", "The option feature cannot qualify for the normal purchases and normal sales exception in paragraph 815-10-15-15 because it is an option contract and it is not probable at inception and throughout the term that the contract will not settle net and will always result in physical delivery (815-932-55-2).", "Scope follows the Overall Subtopic scope in Section 932-10-15 (815-932-15-1)." ], "categories": [ "Derivatives and hedging", "Industry-specific", "Disclosure", "Recognition" ], "audience_level": "advanced", "student_note": "This is a narrow but classic illustration of applying the three-part derivative definition (underlying/notional, no or small initial net investment, net settlement) to a physical commodity arrangement. The common mistake is assuming that a zero fair value means no accounting consequence — the instrument still must be disclosed, and the option feature can never be scoped out as a normal purchase or normal sale.", "related_topics": [ "815-10", "932-10", "932-360", "815-10-50", "815-10-15" ], "key_concepts": [ "gas-balancing arrangement", "overtake and makeup gas", "definition of a derivative instrument", "notional amount", "net settlement", "readily convertible to cash", "normal purchases and normal sales exception", "fair value of zero" ] } ``` Source downloaded (UTC): 2026-09-10T01:40:07.746Z to 2026-09-10T01:40:07.746Z Record version: sha256:70ffe7f966ae0d17639ae21309b823c5ba2ed0be02cce9d47a6396b772e86499 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-932-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/815/932/#00-status) SEC content: no ##### [815-932-00-1](https://asc.understandingaccounting.org/asc/815/932/#815-932-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:40:07.746Z to 2026-09-10T01:40:07.746Z Record version: sha256:65ff2bf25ad3cd93611daa629c81e92ce9f8df83921566214a1d15bd1b653dc0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
ProductionAmendedAccounting Standards Update No. 2010-0301/06/2010
Source downloaded (UTC): 2026-09-10T01:40:09.964Z to 2026-09-10T01:40:09.964Z Record version: sha256:92ff8d7671e8fe4c3fc161a45725c5dd5006c7ff41bd3796549360738000a4c4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-932-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/815/932/#05-overview-and-background) SEC content: no ##### [815-932-05-1](https://asc.understandingaccounting.org/asc/815/932/#815-932-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:40:09.964Z to 2026-09-10T01:40:09.964Z Record version: sha256:9e1f9f79ec87053bc76005ff50977685aa21c7660b74a36ac7f7ce976c797236 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance on gas-balancing arrangements. Source downloaded (UTC): 2026-09-10T01:40:12.705Z to 2026-09-10T01:40:12.705Z Record version: sha256:de253e60a44c549663f1e6f591697c23a77759fefda5f1dbececfd37e675ec0b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-932-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/815/932/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [815-932-15-1](https://asc.understandingaccounting.org/asc/815/932/#815-932-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:40:12.705Z to 2026-09-10T01:40:12.705Z Record version: sha256:8a577dbde0775854b87fbfd04d0601ab2b1251f55190cc51744b9aa4efcb74e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 932-10-15. Source downloaded (UTC): 2026-09-10T01:40:19.151Z to 2026-09-10T01:40:19.151Z Record version: sha256:403a133f0e2a068dc950951b34d09c72d68e0bcd6292e039a2b5e0f917a86f99 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-932-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/815/932/#55-implementation-guidance-and-illustrations) SEC content: no #### Gas-Balancing Arrangements ##### [815-932-55-1](https://asc.understandingaccounting.org/asc/815/932/#815-932-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:40:19.151Z to 2026-09-10T01:40:19.151Z Record version: sha256:0f5609ef08d972f10e08aa5f0a29fa27f2bcb7acbea844f61855930d8724217a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](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.") 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. ##### [815-932-55-2](https://asc.understandingaccounting.org/asc/815/932/#815-932-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:40:19.151Z to 2026-09-10T01:40:19.151Z Record version: sha256:0c5ecef2fa2f6a204c87493535a27b14b1745974d6ffd9e9c72e60bbf420bf48 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83) (as further clarified by the guidance in paragraphs [815-10-55-5 through 55-7](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-5) ) with respect to a notional amount, even though it may meet the criterion in paragraph [815-10-15-99](https://asc.understandingaccounting.org/asc/815/10/#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](https://asc.understandingaccounting.org/asc/815/10/#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.