The costs of drilling commercial wells, which are constructed after the sites are proven to contain mineral reserves
of commercial quantities, are capitalized as assets. However, if the commercial wells turn out to be dry, such costs
are charged to current income.
For oil site acquisitions, the Corporation’s payments for this purchase or investments in foreign joint ventures
involving interest in oil sites - including the Corporation’s share in the costs of drilling commercial wells, production,
transport and storage equipment but excluding the Corporation’s share in the costs of drilling exploratory wells
and other exploration expenses - are capitalized as oil and gas interests. The Corporation’s share in joint ventures’
net earnings (or net losses) is recognized as other operating revenues (or other operating costs). The Corporation
recognizes earnings remitted by joint ventures as a reduction of oil and gas interests. These costs are amortized at
the ratio of the actual quantity of minerals extracted from the wells for the year to the estimated mineral reserve.
The amortized costs and operating expenses paid to joint ventures are regarded as the cost of the Corporation’s
share of the oil and gas extracted. The accompanying financial statements included the related sales and cost of
goods sold attributable to the Corporation’s share of the oil and gas sold by the joint ventures.
For domestic sites and sites of product-sharing contracts, the Corporation amortizes the amount recognized in oil
and gas interests by the ratio of actual quantity produced in the period over total estimated production quantity
of the site. The Corporation accounts for the cost of these mineral production in amortized cost plus the site
operation expenses paid, and recognize crude oil inventory and natural gas inventory by the output value method.
The Corporation recognizes sales and cost of good sold on sale of the inventory.
For sites of Provision of Services Contract, the Corporation amortized the amount recognized in oil and gas
interests in the same method of that of domestic sites and sites of product-sharing contract. The Corporation
accounts for the amortized amount and the site operation expenses paid as other operating costs. On the other
hand the Corporation recognized other operating income by multiplying produced quantity to a revenue rate
contracted with local oil site governments.
The Corporation recognizes earnings from OPIC-Houston (“Huffco”) and translation adjustments based on the
financial statements of Huffco for the same reporting period as that of the Corporation.
Profit and loss generated from the derecognition of oil and gas interest is measured as the difference between the
net disposal proceeds and the carrying amount of the asset and recognized in statement of consolidated income
in the period of derecognition.
Impairment of Tangible and Intangible Assets Other Than Goodwill
At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible and intangible
assets for any indication of impairment loss. If any such indication exists, the recoverable amount of the asset is
estimated to determine the extent of the impairment loss. When it is not possible to estimate the recoverable
amount of an individual asset, the Corporation estimates the recoverable amount of the cash-generating unit to
which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an
asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or
cash-generating unit is reduced to its recoverable amount.
When an impairment loss reverses, the carrying amount of the asset or cash-generating unit is increased to the
revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been
determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A
reversal of an impairment loss is recognized in profit or loss.
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Financial Statements
