05.07.2009
Depreciation in the oil and gas exploration and development is usually charged over the lifetime of production, compared to current expense which is charged to current profits
The depreciation of an investment related to the discovery and production of proven and developed natural gas reserves is done according to the depletion method, namely during each accountancy period, the investment will be depreciated based on the amount of gas actually produced divided by the amount of estimated proven developed gas.
The reserves estimate used for calculating amortization in the depletion method.
In many countries, including in Israel the cost of the investment in oil and gas infrastructure is depreciated according to the amount of gas produced during said report year in relation to the total amount of estimated developed reserves in place in the specific reservoir.
Depreciation based on unit-of-production basis, means that each year the percentage of capital costs depreciated is equal to the volume of hydrocarbons produced, divided by the expected ultimate recoverable volumes of reserves in the reservoir
Gas contract whereas all the gas in a specific field is dedicated to a single buyer. A depletion contract is usually for smaller amounts of gas or oil and it refers to a contract to supply hydrocarbons to a buyer from a seller’s specific dedicated field (as opposed to supply contract). In a depletion contract the buyer contracts to purchase all the gas that can be economically produced from a particular reservoir before a specified termination date. In gas purchase contracts, a depletion contract is an agreement to purchase the output of a field over its whole lifetime