Risk Accounting in Oil and Gas Sector: A Detailed Analysis, Finance

This report provides a comprehensive analysis of risk accounting within the oil and gas sector, focusing on an upstream national company. It begins by outlining the various types of risks, including financial and non-financial risks, and then delves into the principal risks such as oil price volatility, compliance costs, operational hazards, and extreme weather events. The report also explores how these risks are reflected in financial statements and the importance of risk accounting, and its role in budgeting and capital budgeting. Furthermore, it provides potential solutions to mitigate these risks, such as strategies to reduce oil price volatility, manage operational hazards, and prepare for extreme weather conditions. The report concludes with a discussion of risk accounting calculations, and its impact on financial statements, including the presentation of risk-related information in the notes to the financial statements. The report is supported by references to academic sources and industry publications.

RISK ACCOUNTING IN AN UPSTREAM NATIONAL COMPANY
Name of the Student
Name of the University
Author Note

Risk
• Possibility of loss
• Financial Risk
• Non-Financial Risk

Principal risks in oil and gas industry
 Volatility of oil price
 Enhancement of cost of compliance
 Operational hazards
 Weather patterns and natural disasters
 Intense competition

Importance of risk accounting in oil and gas
sector
 Identify the Volatility of oil price
 Identify the cost of compliance
 Identifying Operational hazards
 Identifying the Weather patterns and taking necessary steps to reduce
risk
 Formulating a strategy for developing Competing edge.

Solutions to risks in oil and gas industry
 Reducing the Volatility of oil price
 Mitigating the cost of compliance
 Taking necessary steps to mitigate Operational hazards
 Preparation for extreme Weather patterns and taking necessary steps to
reduce risk
 Developing a Competing edge

Risk accounting and its calculation

Risk in financial statements
Risk in financial accounts appears in the “Notes to financial statements”
under the following heads:
 Provision
 Leases
 Credit risk
 Impairment of non-financial assets

Budgeting affect risk
Budgeting should consider all kinds of risks faced by the
firm.
Capital budgeting deals with firms strategic planning related
to long-term investments.

Risk affect budgeting

Risk affect production

Drawbacks of risk accounting

References
Bergh, L. I. V., Hinna, S., Leka, S., & Jain, A. (2014). Developing a performance indicator for psychosocial risk
in the oil and gas industry. Safety science, 62, 98-106.
Bierman Jr, H., & Smidt, S. (2014). Advanced capital budgeting: Refinements in the economic analysis of
investment projects. Routledge.
Chittenden, F., & Derregia, M. (2015). Uncertainty, irreversibility and the use of ‘rules of thumb’in capital
budgeting. The British Accounting Review, 47(3), 225-236.
Cole, S., Giné, X., & Vickery, J. (2017). How does risk management influence production decisions? Evidence
from a field experiment. The Review of Financial Studies, 30(6), 1935-1970.
Gutama, L. B., & Pujawan, I. N. (2019). Analysis and Mitigation of Strategic Risk Business Process by
Considering Relationship Between Risk Case Study in Electricity Generation Companies. Jurnal Sosial
Humaniora, (01), 31-44.
Kockw.com. (2019). ANNUAL REPORT 2018/19 [Ebook]. KUWAIT OIL COMPANY. Retrieved from
https://www.kockw.com/sites/EN/Annual%20Reports/2018-2019%20English.pdf
Lackovic, I. D. (2017). Enterprise risk management: A literature survey. Economic and Social Development: Book
of Proceedings, 364-370.
Sandström, A. (2016). Handbook of solvency for actuaries and risk managers: theory and practice. Chapman and
Hall/CRC.
Shaeri, K., Adaoglu, C., & Katircioglu, S. T. (2016). Oil price risk exposure: A comparison of financial and non-
financial subsectors. Energy, 109, 712-723.
Trujillo-Ponce, A., Samaniego-Medina, R., & Cardone-Riportella, C. (2014). Examining what best explains
corporate credit risk: accounting-based versus market-based models. Journal of Business Economics and
Management, 15(2), 253-276.