Lease accounting for the energy industry will change under the new standards. Energy companies lease a diverse range of assets across exploration and production, storage and distribution, and corporate and administrative functions.
The new leasing standards will require energy companies to update their accounting policies based on the new principles. In some cases, extensive analysis may be required to arrive at judgments on how to apply the standards to certain lease types.
1. Which types of leases are in and out of scope for the new standard? Understand not only traditional property, plant, and equipment, but also natural gas and drilling rights.
2. Which types of arrangements might qualify as embedded leases under the new standards? Consider complex arrangements with oilfield services companies as well as shared storage tanks and pipeline capacity.
3. How are lease components such as sub-leases, non-billable days, billing based on usage or volume, and escalating and mile-marker payments tracked and reported for transportation and storage assets under the new accounting standards?