Home » Finance » The ‘Idle’ Oil Field Fallacy

The ‘Idle’ Oil Field Fallacy

Red Cavaney, president and CEO of the American Petroleum Institute, makes the good point in The Wall Street Journal (6/20/08) that a great deal of exploratory and developmental work has to be undertaken before a “nonproducing” field can be classified as a “producing” field. He then argues that this means that nonproducing fields are not the same as “idle” fields, a charge the Congress is currently making. Fair enough up to a point. The problem is that some nonproducing fields are currently being explored while some nonproducing fields are not. The former are not idle while the latter are. This raises an accounting disclosure issue, which goes back to our current rather crude expensing of research and development costs. It would surely be of benefit to all of us if we classified leases as “currently being explored” or “currently being developed” or “held for future development.” Why not create a matrix with nonproducing leases running down the first column and the amount spent on each lease in each year running across the row. That way we could all see how much had been spent on each lease and when.

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