O&G units can have many lease agreements across multiple decentralized locations, and in many cases, leasing data is managed in tables or physical documents. As a result, data collection and recording can take a lot of time and resources and be a longer timeframe for O&G companies with higher leasing volumes. In addition, O&G companies may have certain elements of leasing data in an electronic format; However, this data may not have been subject to internal control procedures, in accordance with the Sarbanes-Oxley Act of 2002, may be subject to different systems and is likely incomplete if the company takes into account the accounting and accounting obligations of the new standard. An entity may find that a centralized repository of information is essential to the development of a complete portfolio of leasing contracts. With respect to a customer`s right to control the use of the identified asset, the definition of a lease under the new standard is a significant change from the current guidelines. Under applicable US GAAP, an entity`s acquisition of all production of an identified asset was considered an indication of the customer`s right to control the use of that asset if the unit prices of the agreement were not fixed or in line with the market at the time of delivery. Given the requirement to add most leases to the balance sheet, a large number of O&G companies will reflect additional liabilities in their balance sheets after asU acceptance. These companies should consider whether the increased leverage has a negative effect on significant ratios or whether it is likely to cause breaches of the Debt Covenant. This may depend in part on how different debt agreements define and limit debt, as well as the use of “GAAP” covenants frozen by debt agreements. The ASU requires companies to present obligations to lease transactions outside of traditional debt, which can be a relief for some companies. Regardless of this, we believe it will be essential for all O&G companies to determine the potential impact of ASU on debt obligations and to enter into early discussions with lenders when they believe that breaches are likely due to the adoption of ASU. The chemical industry is capital intensive and traditionally uses off-balance-sheet leasing contracts for assets.
This means that there will be specific challenges for this sector, such as customer delivery contracts and toll agreements such as storage tanks, pipelines, transport nodes and others. In addition, ASU requires information that may not contain existing leasing agreements, which may require O&G companies to collect other leasing-related documents to ensure completeness of the data. For example, O&G companies must normally go beyond the lease to (1) recognize the fair value of the asset, (2) the estimated useful life of the asset, (3) the discount rate (z.B the incremental reference rate), and (4) certain judgments relating to leasing options. This will be a particular challenge, especially for O&G multinationals, whose leasing documentation may be drawn up in a foreign language and may vary depending on local business practices. O&G companies often enter into joint operating agreements (JSAs) in which two or more parties (operators and non-operators) jointly study and develop oil or gas concessions, using each party`s experience and resources. . . .