chapter i

introduction

1. characteristic of accounting for the oil and gas industry

a. the oil and gas industry includes the exploration, development, production of oil
and gas reserves, refinery activities, tanker transportation, and marketing of oil, gas and
other processed products.

oil and gas enterprises can take form of an integrated business that perform
activities in exploration, development, production, refinery, tanker transportation and
marketing in a single business entity, or they can be independent entities.

b. the nature and characteristics of the oil and gas industry are different from those
of other industries. oil and gas exploration is a risky business similar to a gamble. even
though it bas been thoroughly planned, no guarantee exists that the costly activity will
result in the discovery of oil reserves. the oil and gas industry is a highly technical,
capital intensive and high risk business that requires professional management.

activities involved in a refinery are largely similar to those found in any other
processing industry, but they differ significantly from activities in an exploration, while
tanker transportation constitutes a specific part of the shipping industry.

c. in the oil industry, there is a possibility for enterprises to cooperate to manage oil
reserves, whether in the form of a joint capital or joint cooperation. those cooperation can
be conducted through technical support contract, joint operation agreement, joint
operation body, unititation, and secondary recovery, which can result in jointly
ownership,

d. due to its nature and characteristics, there are some specific accounting
treatment for this industry which differ from those of other industries, such as:

• the uncertainty of exploration can lead to some alternatives in recognizing dry

hole costs;

• there is an opinion that cost recognition should be matched with activities until
oil and gas reserves in a country are found. accordingly, all costs incurred
should be deferred and capitalized as a part: of oil reserves found.

• another opinion exists that costs incurred in oil and gas exploration should be
matched with the results of exploring for reserves. costs should be capitalized
if reserves are proven to contain oil and gas, otherwise costs should be
expensed if reserves or results of exploration ass found to be dry.
2, scope and implementation

a. this statement was compiled based on the nature and characteristics of the off
business in indonesia and is guided by the basic of financial accounting
concepts stated in the financial accounting standard and by the prevailing
regulations.

b. this statement is meant to be used as guidance in the presentation of financial

statements for external users. in this regard, it is assumed that both the
preparers and users of financial statements need the same standard in preparing
and presenting; financial statements of an enterprise.

c. this statement includes accounting standards for exploration, development,

production, processing, transportation, marketing; activities, and other activities
in oil and gas industry.

d for oil and gas contractors; who work on contract with the government: or
pertamina, this statement can be used as long as the accounting treatment
is not specifically regulated by a specific contract. in the case that a contract
specifically addresses the accounting treatment of certain transactions, the
contract agreement takes precedent.
 chapter ii

accounting for exploration

1. definition of exploration

exploration or survey activities are defined as efforts in searching and finding oil
and gas reserves in areas which have not been proven to contain oil and gas, including the
following activities:

a. obtaining a license to start the exploration activity in specific areas.

b. performing field geological and geophysical survey activities.

c. interpreting data obtained from the survey.

d. drilling a well, including stratgraphy test welt in areas which have not been proven
to contain reserves.

a. obtaining and building fixed assets related to the above activities.

f using services needed in relation with the above activities.

2. description of exploration activities

exploration activities include surveys on topographical, geological, geophysical

drilling of exploration wells, and stratigraphical test wells.

a topographical survey is an activity to measure the surface of land to e drawing

maps of a specific area and to study the nature of the land.

a geological survey includes site looking air radar (slar), field geological
geochemical activities conducted to*

a. determine whether there is a hollow sediment.

b. determine the types of layers; thickness and ages of stones covered in the survey
areas.

c. determine the potential and the maturity of hydrocarbon stone.

d. determine oil and gas traps, both structural and stratigraphical.

e. verify the possible existence of reserves and types of oil and gas contained inside.

a geological survey is performed in following steps:

a. preparation, including preparing work program and acquiring licenses.

b. data gathering through slar or taking samples directly from the field.

c. processing, analyzing, interpreting, evaluating and reevaluating the data.

a geophysical survey includes gravitation, magnetic and seismic survey activities

performed in order to:

a. understand the regional structure pattern.

b. determine the shape of the underground stone layer.

c. determine the shape of oil and gm traps and their depth.

d. determine the drilling point at drilling location.

a geophysical survey is performed in following steps:

a. preparation, including the preparing the work program and acquiring licenses.

b. field data gathering through air recording that consists of aerogravity and
aeromagnetic, and field recording that consists of magnetic and seismic gravitation.

c. processing, analyzing, interpreting, evaluating and reevaluating clata.

drilling of exploration wells consists of drilling; wild cat and delineation wells. the
drilling is performed to determine the detailed stratigraphic data and to determine
whether there are oil and gas reserves of economical value.

drilling exploration is performed according in following steps:

a. preparation, including preparing work program, acquiring licenses and land

clearing.

b. procurement of heavy transportation equipment.

c. construction of roads and preparation of drilling location.

d. procurement of drilling; tools and facilities which consist of rig unit, mud logging
unit, wire line logging unit, cementing unit, platform and base camp.
b. drilling operations that cover construction of wells, gathering of technical data that
consists of geological and petrophysical data and continuous evaluation of data.

f testing of stone layer based on the result of data evaluation.

g. finishing or closing of wells. drilling of stratigraphical test wells consists of drilling

activities based on geological survey results, testing of stones and expendable holes
in connection with hydrocarbon exploration. the objective of drilling stratigraphical
test well is to obtain information about certain geological conditions, generally this
type of drilling is not meant to produce hydrocarbons.

3. types of exploration costs

exploration costs consist of topographical, geological and geophysical survey

expenses, exploration well drilling and stratigraphical test well drilling survey costs.

topographical survey costs consist of.

a. cost of measuring land

b. cost of mapping land
c. cost of analyzing land.

geological survey costs consist of-.

a. slar costs
b. field geological costs
c. geochemical costs.

geophysical survey expenses consist of the following:

a. gravitation costs
b. magnetic costs
c. seismic costs.

exploration well drilling costs consist of intangible and tangible costs.

intangible costs include:

a) preparation costs (land clearing, construction of road and preparation of location)

b) drilling costs
c) drilling bit costs
d) mud costs
e) casing costs
1) cement costs
g) logging costs
h) testing and finishing costs
i) salary costs
j) costs of transporting drilling tools

k) other transportation costs

l) camp costs
m) other costs.

while tangible costs in the drilling of exploration wells include:

a) christmas trees
b) well head ejection
c) tubing
c. pumping
d. sucks rods

the costs of drilling stratigraphical test wells consist of unproven reserves

drilling costs (exploratory type) and proven reserves areas (development type). these
types of costs are similar to the types of costs of drilling exploration wells as detailed
above.

4. accounting treatment for various t~rpes of exploration costs

exploration activities include the survey on topography, geology and geophysical

conditions, drilling of exploration wells and stratigraphical test wells.

exploration costs can be accounted for using either the full cost or successful efforts
method.

according to the full cost method, all costs are capitalized in a cost canter as part of the
oil and gas assets of a country as a cost canter.

according to the successful efforts method, all exploration costs other than allocated to
exploration wells (including stratigraphical exploration well type) which have proven
reserves, are treated as expenses in the respective accounting period. moreover, except for
land with economic value, costs of drilling exploration wells, wh6her intangible or
tangible, are capitalized when the proven reserves are found, or treated as expenses if
proven reserves are not found.
 chapter iii

accounting for development

l definition of development

development activities arc defined as all activities performed in order to develop

proven oil and gas reserves until they we ready for production. development activities
include the followings:

a. procurement of equipment and inventory,

b. mining, distribution, collection and storage of oil and gas.
c. procurement of secondary recovery system.

2. description of development activities

the development activities can be outlined as follows.

procurement of equipment and inventory that includes

a. procurement of heavy equipment transportation.

b. construction of a road and drilling location,
c. procurement of drilling equipment and facilities such as rig unit, mud logging; unit,
wireline logging unit, cementing unit, platform and base camp.

oil and gas mining activities that includes:

a. survey of a well location to determine the drilling point.

b. construction of the passage to the drilling well location.
c. preparation of land for drilling location.
d. rearrangement of public roads, gas channels, water pipes, electricity and telephone
networks needed for development of proven reserve.
e. drilling and completion of development wells, stratigraphical test wells and
supporting wells and furnishing those wells with required equipment.

oil and gas distribution activities that includes:

a. preparation of distribution pipe network, manifold, separator, treater and heater.

b. preparation of recycling facilities and natural gas processing facilities.

oil and gas accumulation and distribution activities including preparation of

measuring-tools, reserve tanks and waste facilities.

procurement activities of the secondary recovery system.

3, type of development costs

development costs consist of costs of procuring equipment and facilities for

extracting, distributing, gathering and storing of oil and gas, and costs of procuring a
secondary recovery system. based on their nature, costs related to the development of oil
and gas wells consist of well drilling costs, tangible as well as intangible.

intangible development well drilling costs include expenditures for drilling

development wells, such as salary of the rig operator, fuel and repairs. those expenditures
have no salvage value and are incurred during the drilling from the preparation of wells
up to the production of oil or gas.

moreover, intangible costs in the drilling of development wells ate classified in

accordance with the completion stages: pre-drilling costs, drilling in process costs, well
completion costs and post-completion well costs.

pre-drilling costs consist of.

a. geological and geophysical survey costs to determine drilling location.

b. costs of cleaning-up the well location, digging-up drilling waste storage and
constructing roads.
c. costs of constructing foundation for drilling equipment (stones and others) and
constructing bridge,
d. costs of installing water pipe network and installing water and fuel tanks.
e. costs of transferring and building of drilling equipment.
f costs of constructing racks to store drilling pipes and other pipes used in drilling
process.
g. other costs.

drilling in-process costs consist of.

a. costs of procuring water, fuel and other materials needed for well drilling.
b. costs of planting anchor for stabilizing drilling equipment.
c. drilling costs which are calculated based on the well depth or daily rate.
d. engineering service costs during the drilling activities performed by engineers,
geologists and fluid engineers.
e. other costs.

well completion costs consist of:

a. logging costs, drill stern test and other test costs, such as core mineral test and well
wall sample costs.
b. down-hole casing, cementing, suction crack and souring costs.
c. transportation and underground equipment installation costs.
d. leased equipment costs for storing the oil during the test.
e. other costs.
post-completion well costs consist of.

a. costs of returning drilling equipment (owned by the enterprise) from the drilling
location to the warehouse.
b. costs of rehabilitating location around the well.
c. environmental improvement costs.
d. costs of cementing and installing up-wrapper.
e. costs of transporting casing and tubing pipes from the warehouse.
f down-hole casing costs, including electrical logging.
g. costs of injecting water, steam and gas for lifting oil from the production zone.
it. costs of closing wells.
i. costs of abandoning an unproductive well (dry hole).
j. other costs.

tangible development well drilling costs cover all tangible asset costs including
underground tubing, such as:

a. tubular goods.
b. casing heads.
c. pumps, reservoir tanks.
d. distribution pipes.
e. separator.
f production equipment and facilities.
g. other facilities and equipment.
h. secondary recovery system costs.

4, accounting treatment for various types of development costs

development activities include the procurement of equipment and facilities for

extracting distributing accumulating and storing the oil and gas, and provision of repaired
secondary recovery systems.

under either the full cost method or successful efforts method, all development costs are
capitalized as a part of the oil and gas assets including well assets and equipments.
 chapter iv

accounting for production

1. definition of production

production is defined as all activities performed to lift oil and gag from proven
reserves to the land surface and to transport it to the collecting station which includes the
following activities:

a. lifting oil and gas to the land surface.

b. separating oil, gas, and basic sediment and water.
e. transporting oil and gas from the land surface to the collecting station or
collecting production center, and then to the distribution location. d. putting
crude ou into tanks.

2. description of production activities

production activities include lifting oil and gas to the land surface, separating oil,
gas and basic sediment and water, transporting and collecting the oil at the production
field and at a distribution location.

a. lifting activities relate to lifting oil and gas from proven reserves to the upper edge
of the well. tms activity can be performed through three steps of recovery:

primary recovery is performed through natural lifting, artificial lifting, gas lifting
mud suction by the pumping unit.

natural lifting occurs if the reserves contain water or high pressured gas with
enough natural energy to lift the oil to the land surface through the hole of the well. if
natural lifting is not strong enough to lift the oil to the land surface, artificial lifting will
be used with the aid of gas lifting or a pumping unit.

secondary recovery is performed when the usage of primary recovery to lift oil and
gas becomes less economical. at this stage, recovery is performed through induction of
artificial power into the formation. the water flooding method is the most common
method used. this method distributes high pressured water into injection wells to lift the
oil to the surface.

tertiary recovery is performed using enhanced oil recovery methods which is

achieved by building up pressure in the reserves through injection of chemicals or energy
into the well to lift the oil to the surface, so that unproductive wells could become
productive again;
b. the oil separation process involves the separation of gas and liquid crude oil, basic
 sediment and water through a dehydrator;

c. the transportation process includes transporting oil from the well surface to a
temporary reservoir, then to a separating installation, then to the reservoir at the
production field and finally to the distribution location;

d. the collection process includes:

• collecting oil and gas from the well and storing them to the temporary reservoir
before the separation process of oil, gas and bs&w (basic sediment & water) at
the separation installation.

• collecting oil from the separation installation to the collecting station and/or
production collection center at the field.

generally, the production function is assumed to be complete when oil and gas lifted
through the channel valves at the production collection center. under physically or
operationally unusual circumstances, the production function considered ended
when the oil, gas or condensate is for the first time distributed main pipes,
transportation vehicles, a refinery or a sea terminal.

3. types of production expenses

production expenses include lifting expenses, separation expenses, transportation

and collection expenses.

lifting expenses include the following:

a. primary recovery expenses that consist of expenses related to draining (recovery)

from the underground up to the surfaces (from under casing head to upper casing
head).

b. secondary recovery expenses that consist of expenses related to water flooding, gas
injection, steam combustion, incite combustion and other expenses.

c. tertiary recovery costs.

collection expenses include expenses for transporting and delivering gas and crude
oil from field storage to the main storage before being sold or transferred to a processing
plant.
these expenses consist of:

f. reservoir tank expense

b. heater station expenses
c. oil & gas pipeline expenses
d. production installation expenses
e. other expenses.

separation expenses consist of:

a. collecting installation expenses

b. supporting installation expenses.

main transportation expenses are expenditures for maintenance and operation of

main storage facilities and main pipeline that carries crude oil and gas to the loading or
processing facilities.

4. accounting treatment for various types of production expenses

production activities include lifting oil and gas to the land surface, separation of the
oil, gas and bs&w, and oil transportation at the production field and to a distribution
location.

all expenses related to production activities are treated as expenses when incurred.
 chapter v

accounting for processing

1. definition of processing

oil and gas processing is defined as the processing of crude oil and natural gas into
a product which consists of fuel and non-fuel products, and the processing of gas and
non. fuel products into petrochemical products.

fuel products are avigas, avtur, super, premium, kerosene, automotive diesel oil
(ado), industrial diesel oil (ido), fuel oil (fo), etc.

non-fuel products are refinery products other than fuel, including low sulfur waxy
residue (lswr), naphtha, lubricant, asphalt, etc.

petrochemical products are products that result from processing of gas and non-fuel
products such as purified terephtalic acid (pta), methanol, polypropylene, olefin,
paraxylene, etc.

2. description of processing activities

processing comprises all activities in the processing of crude oil and natural gm into
fuel and non-fuel products, and processing gas and non-fuel products into petrochemical
products. such activities include:

g. determining the types and amount of crude oil to be processed and oil products to be
produced, taking into account the characteristics and capacity of the refinery,
inventory and demand for the products

h. processing crude oil and natural gas under a first process, second process, other
processes and a treating unit process.

the first process includes:

• processing crude oil by using a distillation unit to produce fractions of gas,

naphtha, kerosene, ado, and long residue which meet required specifications.

• recycling off-grade oil and slop products using a distillation unit to produce,
among others, fo.
• processing long residue from the results of a bottom crude oil distiller by using a
vacuum unit to produce flashed gas oil and short residue which will then be
processed during the work process.

the second process includes:

• processing heavy gas oil using a cracking unit to produce other products such as
oil and gas, kerosene and diesel
• increase octane content in oil and gas by using a reforming unit
• processing gas or light fractions that contain propane and butane into liquified
petroleum gas (lpg), processing butane and butylene, into avigas and processing
propylene into polypropylene.

the other processes include:

• processing flashed gas oil into wax material by using a wax plant.
• processing flashed gas oil into lube base by using a lube plant
• processing short residue into bitumen asphalt by using an asphalt plant
• processing short residue into coke by using a coker unit.
• deleting/eliminating unexpected contamination in intermediate products that
have fulfilled the required specification or in other oil products by using a
treating unit.

i. examining through a laboratory analysis, the types of products produced to ensure the
quality meets the required specifications.

j. distributing refined products through a pipeline to tankers or distribution tanks.

k. distributing refined products through a pipeline to tankers or distribution tanks

processing expenses comprise expenses incurred for processing crude oil and gas into
fuel and non-fuel products and processing gas and non-fuel into petrochemical products,
including the following:

the first process expenses, comprise:

l. processing expenses for refining in a distillation unit

m. processing expenses for re-refining in a redistillation unit
n. processing expenses for vacuum refining in a vacuum unit
o. repair and maintenance expenses for the units mentioned above
p. utilities expenses such as steam, electricity, and water cooling
q. refinery fuel and gas expenses
r. receiving and storage expenses for crude oil and products
h. laboratory expenses for testing crude oil and production.
the second process expenses, comprise:

a. processing expenses for separating heavy ail in cranking unit.

b. expenses to increase octane content in oil and gas in reforming unit.
s. expenses for processing gas and light fraction at lpg plant and polypropylene plant.
d. repair and maintenance expenses for the above units and piants.
e. utilities expenses such as steam, electricity, and water cooling.
f storage expenses.
g. laboratory expenses for product testing.

the other processing expenses, comprise:

a. flashed gas oil at the wax plant.

b. flashed gas oil at the lube plant.
c. short residue at the asphalt plant.
d. short residue at the coker unit.
e. short residue at the treating unit.
f. natural gas at the methanol plant.
g. ethylene at the olefin plant.
h. paraxylene at the aromatic plant.
i. other supplementary plant expenses, such as drum plant, oxygen plant, ate.

general processing expenses comprise:

a. direct general expenses such as equipment rental, professional fees, direct labor,
insurance, etc.
t. indirect general expenses such as general insurance, fixed assets depreciation, taxes,
overheads, processing expenses, etc.

4, acquisition cost or processing fixed assets

acquisition costs of processing fixed assets (pfa), whether direct or indirect processing,
comprise:

a. acquisition costs of pfa related to the first process.

b. acquisition costs of pfa related to the second process.
0. acquisition costs of pfa related to other process.
d. acquisition costs of pfa related to processing facilities (storage, handling and
blending facilities).
e. acquisition costs of pfa related to utilities and auxiliaries.
f acquisition costs of pfa related to immovable general fixed assets.
g. acquisition costs of pfa related to transportation facilities.
h. acquisition costs of pfa related to office buildings, villas and houses.
i. acquisition costs of pfa related to movable general fixed assets.
5. accounting treatment for various types of expenses and acquisition cost of
processing fixed assets

processing activities include ail activities in processing crude oil and gas into
products which consist of fuel and non-fuel products and processing gas and non4uel
products into petrochemical products.

accounting treatment for first processing expenses

all expenses incurred in the first processing units are treated as processing
operational expenses. these expenses are classified into three types of activities:

a. processing unit activities:

• distillation expenses at the crude distiller, atmospheric distilling unit

and topping unit.
• redistillation expenses at the redistiller and rerun pipe still.
• vacuum distillation expenses in the vacuum unit, vacuum pipe still
and vacuum flash unit.

b. utility installation activities:

• electric power installation expenses.

• hot stem installation expenses.
• water cooler installation expenses
• other utilities installation expenses.

c. maintenance activities:

• include maintenance/repair expenses, utility expenses, storage expenses, testing

laboratory expenses, transportation expenses, etc.

accounting treatment for second processing expenses

all expenses incurred at various units in the second processing are treated as
operational processing expenses. these expenses arc classified into three activities:
a. processing unit activities-

• cracking expenses at the thermal cracking unit, fluid catalytic cracking unit,
hydrocracker and visebreaker.
• reforming expenses at the thermal reforming unit and platformer.
• expenses of units that process gas and light fraction, such as lpg plant and
polypropylene plant.
• natural gas fractionation unit expenses.

b. utility installation activities:

• electric power installation expenses.

• hot steam installation expenses.
• water cooler installation expenses.
• other utilities installation expenses.

c. maintenance activities

• maintenance/ repair expenses.

• utility expenses.
• storage expenses, testing laboratory expenses, pipeline transportation
expenses.
• other utility expenses.

accounting treatment for other processing expenses

all expenses incurred at the various units in other processing are treated as
operational processing expenses. these expenses are classified into three types of
activities:

a. processing units activities

• expenses at w~ plant, lube plant, asphalt plant, coker unit, etc..

• treating unit expenses.

b. utility installation activities

• electric power installation expenses

• hot stem installation expenses
• water cooker installation expenses, etc.
• other utilities installation expenses.
c. maintenance activities
expenses incurred in these activities include such as repair and maintenance
expenses, utility expenses, storage expenses, testing laboratory expenses and product
transportation expenses.

accounting treatment for general processing expenses

all general expenses incurred during processing activities, whether directly related
to the processing activities or not, are treated as operational processing expenses which
are allocated to the respective departments or unit activities.

accounting treatment for acquisition costs of processing fixed assets

these expenditures represent capita] expenditures in:

a. acquisition costs of pfa.

b. expenditures for replacing parts of a pfa unit which increases the capacity;
c. present value of minimum lease payments related to capital leases.
d. interest costs of loans during the construction period and the loans which were
incurred for project construction
 chapter vi

accounting for transportation

1, definition of transportation

transportation is defined as the delivery of crude oil and oil products (including lng
& lpg) by ship or other floating means through seas and/or river directly from a loading
port to an unloading; port or through a floating tank facility.

2, description of transportation activities

transportation by ships or other floating means includes activities such as receiving,

carrying and delivering of crude oil and products from a loading port to an unloading port
by using; the enterprise's own ship, leased ship or chattered ship.

3. types of transportation expenses

transportation expenses include expenses arising from activities related to receiving,

carrying and delivering crude oil and products by ship or other floating transportation
means, consisting of.

own ship operational expenses, which consist of:

a. expenses related to the preparation of a ship's operations; in order to ensure the ship
is in good condition and ready to operate (running costs). these expenses cover:

• ship maintenance service

• ship personnel
• provisions
• ship equipment and supplies
• burring repairs
• ship damages
• ship communication
• ship insurance

b. shipping operational expenses (operating costs), which cover expenses for:

• port charges and clearance

• fresh water
• ship agency
• bunker
• bonus cargo tank cleaning
• daily payment abroad
 • ship insurance

operational expenses of chartered ships, consist of:

u. ship rental expenses
v. ship operational expenses when they are charged to the lessee as stated in the
contract.

4, acquisition cost of transportation fixed assets

acquisition cost of fixed assets used to transporting crude ail, oil products and
others is acquired through self-construction, direct purchasing and capital lease, which
includes the acquisition of a tanker and a light ship.

5. amounting treatment for various types of transportation expenses and

acquisition cost of transportation fixed assets

the transportation of crude ail and other products involves the activities in receiving,
carrying and delivering crude oil and other products by ship or other floating means.
accounting treatment for such activities is as follows*

w. expenses from the operation of an owned ship arc treated as direct expenses during
the ship's operation period;
x. amounting treatment for chartered ships follows the agreement and commitment
under the charter party, including:

• time charter
ship rental expenses and operating expenses for a stated charter period are
treated as expense.
• voyage charter.
rental expenses for transporting cugo from a loading port to an unloading port
are treated as expenses while the operating expenses are billed to the ship
owner.
• bare-boat charter.
the costs of renting a ship, excluding its crew, and its operating expenses for a
stated period are treated as expenses

c. accounting treatment for the acquisition cost of transportation fixed assets are as
follows:

• a tanker and/or a light ship that is self constructed and/or acquired from direct
purchasing is capitalized at acquisition cost, accounted as one whole unit,
including its equipment in a ready for use condition;
• a tanker acquired under capital lease is capitalized based on the present value
of all installments paid during the contract period;
• additional expenditures in obtaining additional shipping equipment are
capitalized as a part of the initial total ship value;
• expenditures related to changes in economic useful life and ship capacity are
capitalized.
 chapter vii

accounting for marketing

1. definition of marketing

marketing is defined as all activities that relate to the sale of crude oil, natural gas
and other products to consumers or suppliers inside and outside the country,

2. description of marketing activities

marketing activities involves local procurement and export of crude oil, natural gas
and other product.

a. activities in providing and selling; oil and non-oil products to local consumers and
suppliers, covering:

• market analysis
• planning for sale of products and for own use
• procurement activities, including those relating to mixing, packaging and
distributing the products
• sales operations
• training, quality control, development of selling channels and promotion
• maintenance of sales facilities.

b. activities in providing and selling crude oil and products for export, covering:

• market analysis.
• planning for supplying and marketing crude oil and products for export.
• planning for fulfilling customer's or potential customers needs for crude oil
and refinery products.
• development of market share in crude oil and refinery products.
• determining price/allowance/premium and administration costs.
• preparing and completing sales contracts on crude oil and refinery products.
• scheduling the export shipment of crude oil and refinery products and
carrying out the scheduled activities.
• notifying buyers about shipment details.
• quality control of exported crude oil and refinery products.
• preparing and completing invoices.

c. activities in providing and selling gas, covering:

• market analysis.
• planning for sale of products and for own use.
 • procurement activities, including those relating to mixing, packaging and
distributing the products.
• sales operations.
• training, quality control, development of distribution channels and
promotion.
• maintenance of sales facilities.

3, types of marketing expenses

based on product type and location, marketing expenses can be classified as

follows:

a. expenses for marketing of refinery products in local markets covering:

• procurement and distribution expenses

• manufacturing and packaging expenses
• marketing facility expenses
• promotion expenses
• training expenses
• technical service expenses
• quality control expenses
• r & d expenses
• general expenses.

b. expenses; for marketing of gas in local market covering:

• pumping house, compressor, booster expenses

• heater station expenses
• gas pipe expenses
• telemetering expenses
• other expenses.

c. marketing expenses of exported crude oil and refinery products cover general
expenses incurred to boost marketing of oil and refinery products, closing contracts
and other administration expenses.

4, acquisition cost of marketing fixed assets

marketing fixed assets are local marketing facilities. these costs cover the
acquisition cost of.

a. installation, agents, logistic centers, gas stations

b. gas and product pipes
 c. land transportation facilities
d. water transportation facilities
e. drums and lpg tubes factory
f pumping house, booster, compressor
g heater station
h. telemetering.

5, accounting treatment for various type of marketing expenses and acquisition

cost of marketing fixed assets

the accounting treatment for expenses incurred to market the products inside and
outside the country and the acquisition costs of fixed asset is as follows:

y. all local marketing expenses of the products ate treated as operational marketing
expenses whereas manufacturing expenses and packaging expenses arc included
in the cost of goods sold;

z. all local marketing expenses of gas are treated as marketing operational

expenses;

aa. all marketing expenses of crude oil and refinery products outside the country are
treated as marketing operational expenses;

bb. all acquisition costs of fixed assets used in marketing activities arc capitalized
and depreciated accordingly.
 chapter viii

accounting for other areas

accounting for other areas consists of :

cc. accounting for specific ports

dd. accounting for telecommunications
ee. accounting for technical assistance contract
ff. accounting for unitization
gg. accounting for secondary recovery
hh. accounting for joint operating

ii. accounting for specific ports

jj. definition of specific port

a specific port is a port owned and operated by pertamina to support oil and gas
operations.

kk. description of specific port activities

activities of a specific port include managing the port, organizing port facilities
and protecting the environment.

ll. managing the port include:

• providing docking facilities

• planning, conducting and controlling the development of the port, and
conducting repair and maintenance of the port
• conducting hydrographical survey to detect the depth line
• performing soil test in constructing port facilities and environment protection
• organizing and processing port licenses such as guiding license, sailing license,
etc.

mm. organizing port facilities include:

• providing facilities alongside ship and light ship, and coordinating ship
movements in a specific port.
• collecting port service fees from the ships using specific port facilities and
depositing part of fees withheld to the state port enterprise (perum pelabuhan)

c. environment protection includes:

 • prevention of risk of oil being spilled into the sea and handling such accidents
should they occur
• collecting environmental protection service fees.

3, types of specific port expenses

a. port expenses consist of:

• expenses to obtain license to operate in the water of the port

• pier expenses
• miscellaneous expenses.

b. port facility expenses consist of:

• ship docking and port expenses

• tug boat operation expenses
• mooring boat operation expenses
• operation expenses of a convey ship for ship crew
• barge operation expenses
• miscellaneous expenses.

c. environmental protection expenses consist of:

• oil spill prevention expenses

• personnel expenses
• miscellaneous expenses.

4. acquisition cost of specific port fixed assets

the acquisition cost of specific port fixed assets comprise acquisition costs of:

a. port facilities and equipment.

b. environmental protection facilities.

 nn. accounting treatment for various types of expenses and acquisition cost of
specific port fixed assets

specific port activities including all port activities owned and operated by pertamina
to support operation of oil, gas and other

the accounting treatment for these activities is as follows:

oo. all expenses incurred from port management, port facilities and environment
protection are treated as specific port operating expenses.

pp. all acquisition costs of port facilities and supplies and environment protection are
capitalized and depreciated accordingly,

b. accounting for telecommunication

1. definition of telecommunication

telecommunication and communication networks and equipment (radio, telephone,

telex, facsimile, etc.) that support pertamina's operations.

2. description of telecommunication activities

telecommunication comprise ail activities; in planning, procuring, managing and

directing activities, and controlling of data or information in various forms such as voice,
manuscript, picture, computer and navigation data by using various telecommunications
equipment.

3. types of telecommunication expenses

telecommunication expenses include all expenses arising from communication

activities to support pertamina’s operations which consist of.

a. leased channel expenses

qq. communication licenses and executory right expenses

c. channel connection/installation/switching expenses

d. telephone line expenses for other institutions that support pertamina's

operations;

e. miscellaneous expenses.
4, acquisition cost of telecommunication fixed assets

the acquisition cost of telecommunication fixed assets include the acquisition cost
of telecommunication facilities and equipment.

5, accounting treatment for various types of expenses and acquisition cost of

telecommunication fixed assets

rr. telecommunication expenses. all expenses from telecommunication operations are

treated as telecommunication operating expenses.

ss. cost of telecommunication fixed assets. all acquisition costs of telecommunication

fixed assets are capitalized and depreciated accordingly, except for
telecommunication fixed assets handed over to perumtel which are recorded as
other assets (deferred costs).

c. accounting for technical assistance contract

1. definition of technical assistance contract

a technical assistance contract is a work relationship between two or more oil

enterprises, in which the first party owns the oil field to be developed and the second
party or parties are committed to provide funds and services for rehabilitation and
development of the field by bearing all executory costs to increase oil production. the
second party or parties who provide funds and services will have a share in the
incremental production in accordance with the agreed contract.

2. description of technical assistance contract activities

technical assistance contract activities include rehabilitation, development and

production activities.

the tasks and activities of the first party, who owns the field, are:

tt. to transfer the field which will be rehabilitated and developed by the second
party or parties who provide funds and services.

uu. to control the execution of the field operation.

vv. to verify, examine, and approve field operation expenses as a deduction of

incremental production results (cost recovery).
 the tasks and activities of the second party or parties who provide the funds and
services are:

ww. to carry out field rehabilitation and development in order to achieve a higher
production level than before.

xx. to amount for field operation costs as costs to be recovered by the first party, in
conformity with the contract.

3, types of technical assistance contract costs and expenses

technical assistance contract costs and expenses cover development costs and
production expenses. these types of development costs and production expenses have
been discussed earlier in the accounting for development and production.

4, accounting treatment for various types of technical assistance contract costs

and expenses

development and production expenses are treated os capitalized costs and expenses,
respectively.

d, accounting for unitization

1, definition of unitization

unitization is a cooperation between two or more oil enterprises to developing and

to produce two or more oil and gas fields which are geologically close to each other. the
sharing of costs and production is determined based on an agreement.

in a unitization operation generally there is a cooperation among enterprises, one

acting as the operator and the other as the non-operator.

the operator is the enterprise which carries out the unitization operation whereas the
non-operator is the other party in unitization who is not involved in the unitization
operation.

2. description of unitization activities

unitization includes development and production activities. in a unitization, there is

a cooperation between an enterprise functioning as the operator and an enterprise
functioning as the non-operator.

a. the task and obligations of the operator enterprise are as follows:

 • to finance part of the operation costs in accordance with the agreement.
• to execute the operation which includes development activities and field
production.
• to bear part of the operating costs of the non-operator, in conformity with the
agreement
• to provide accountability for the operating costs to be borne by the non
operator enterprise.

b. the non-operator enterprise is obliged to transfer money/goods/services for

financing part of the operation to the operator in accordance with the agreement.

3. types of unitization costs and expenses

unitization costs and expenses include development costs and production expenses.
the types of development costs and production expenses ate outlined in the accounting
standard for development activities and the accounting standard for production activities.

4, accounting treatment for various types of unitization cost and expenses

costs and expenses from a unitized operation are shared between the operator and
non-operator enterprises based on an agreement.

costs and expenses borne by each enterprise are accounted for in accordance with
each respective enterprise’s accounting policy. generally, development costs are
capitalized, whereas expenditures for production are treated as expenses.

e, accounting for secondary recovery contract

1, definition of secondary recovery

secondary recovery is a method of recovering oil and gas by inducting artificial

energy into a formation in order to increase the production level beyond the production
ievel reached during the first recovery.

secondary recovery can be performed by the enterprise itself or contracted to other

parties. this sub-chapter only outlines the secondary recovery operated in the form of a
contract.

secondary recovery performed by the enterprise itself has been outlined earlier in
the chapter describing accounting for production activities.

2. description of secondary recovery activities

secondary recovery contract determines tasks and obligations as follows,

a. the tasks and obligations of the enterprise that owns the oil and gas field are:

• to hand over the activities in developing old oil and gas fields and in
producing oil and gas to the party who will execute the secondary recovery.
• to control the expenses incurred during the secondary recovery operation
which are paid by the executor.
• to finance part of the operating costs in accordance with the agreement stated
in the contract provided the owner of the oil and gas field is involved in the
operation.

b. the tasks and obligations of the enterprise that executes the secondary recovery are
as follows:

• to execute the development of the oil and gas fields which includes
re-drilling to assess the economic value of the hydrocarbonate content.
• to execute the recovery (production) of the oil and gas to the land surface.
• to provide accountability for the incurred costs to the owner of the gas fields.

3, types of secondary recovery costs and expenses

secondary recovery costs and expenses include development costs; and production
expenses. these types of costs and expenses arc the same as detailed in the accounting
standard for development and production activities.

4, accounting treatment for various types of secondary recovery costs and

expenses

development costs and production expenses arising from the secondary recovery
operations arc treated as capitalized costs and expenses respectively.

f. accounting for joint operations

1. definition of joint operation

a joint operation is a capital cooperation through which two or more oil enterprises
carry out exploration, development and production activities in an oil and gas mining area
and sharing the expenses and production based on a contract.

2, description of joint operation activities

a joint operation is intended to reduce the risk and costs of the parties involved.

a joint operation includes exploration, development and production activities. in a

joint operation there is cooperation between an enterprise that functions as the operator
and other enterprises that function as non-operators. this cooperation take various forms,
such as joint operating agreement (joa) and a joint operating body (job).

in a joa, pertamina acts as a non-operator while a foreign contractor acts as the

operator. in a job, pertan11na is the operator while a foreign contractor acts as a
non-operator.

the operators tasks and obligations are:

a. to finance part of the operation costs in rnanaging the exploration, the development
and production activities of a mining area.

b. to manage activities in the mining/working area including exploration, development

and production activities.

c. to bear part of the operation costs from the non-operator and provide an accounting
to the non-operator about its part of the operation costs that should be borne by the
non-operator enterprise.

the non-operator enterprise is responsible for delivering money or services to

finance part of the operation costs in managing the mining area in accordance with the
agreement.

3. types of joint operation costs and expenses

types of joint operation costs and expenses include

a. exploration costs and expenses

b. development costs

c. production expenses.

4, accounting treatment for various types of joint operation costs and expenses

costs and expenses incurred in operating a mining area undu a joint operation
agreement arc split between the non-operator and operator enterprise in accordance ~rith
the agrement.

costs and expenses borne by each enterprise arc accounted for in accordance with
each respective enterprise’s accounting policy.

in general, expenditures for exploration ate capitalized or treated as expenses,

development costs are capitalized, and expenditures for production are treated as
expenses.
 chapter ix

effective date

this statement is effective, at the latest, for financial statements for peroids ending
on or after march 31, 1991.