An Analysis of Differences Between Non-major Oil Firms Using Successful Efforts and Full Cost Methods.

Abstract ABSTRACT: Subsequent to the issuance of FASB Statement 19 mandating the adoption of successful efforts accounting in the oil and gas industry, a number of full cost companies appealed to the SEC to permit the continued use of full cost accounting. One of the primary arguments raised by these full cost companies was that companies using each alternative method are so different that dual accounting methods are appropriate. The full cost companies argued that they were more aggressive in exploration, newer, and in greater need of external funds than successful efforts companies. An analysis of data for companies using each method indicated that full cost companies were not more aggressive in exploration than their successful efforts counterparts. Full cost companies were more highly leveraged. This result indicates a relatively greater use of outside capital, but the cause of this greater use could not be determined.