CIRCULAR

PROVIDING GUIDANCE ON ACCOUNTING FOR OIL AND GAS INDUSTRY OPERATORS

Pursuant to the Accounting Law dated June 17, 2003;

Pursuant to the Law on Oil and Gas dated July 6, 1993 and the Law on Revision of several articles of the 2000 Law on Oil and Gas and the Law on Revision of certain articles of the 2008 Law on Oil and Gas;

Pursuant to the Government’s Decree No. 129/2004/ND-CP dated May 31, 2004 specifying and guiding implementation of certain articles of the Business Accounting Law;

Pursuant to the Government’s Decree No. 33/2013/ND-CP dated April 22, 2013 providing the sample production sharing agreement;

Pursuant to the Government's Decree No. 215/2013/ND-CP dated December 23, 2013 defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

Pursuant to the Prime Minister’s Decision No. 40/2007/QD-TTg dated March 21, 2007 on clearing of immovable construction projects, tool and equipment for oil and gas activities;

Upon the request of the Department of Audit and Accounting Regulation

The Minister of Finance hereby introduces the Circular providing guidance on the accounting for oil and gas industry operators.

Chapter I

GENERAL PROVISIONS

Article 1. Scope and subject of application

1. Scope of application

- This Circular deals with the accounting for oil and gas industry operators. Unless prescribed by contents of this Circular, oil and gas industry operators shall be subject to regulations set out in the Law on Accounting and written guidance for the Law on Accounting; the corporate accounting policy released under the Decision No. 15/2006/QD-BTC dated March 20, 2006 of the Minister of Finance, the Circular No. 244/2009/TT-BTC dated December 31, 2009 and written guidance on revision and replacement of the corporate accounting policy (hereinafter referred to as applicable accounting policy).

- Oil and gas industry operators shall apply the chart of accounts prescribed in the applicable corporate accounting policy and accounts revised by this Circular to their accounting where relevant to the nature of their activities and requirements concerning management.

2. Subject of application

This Circular shall govern individual operators of the oil and gas industry and joint operating companies that act on behalf of parties to an oil and gas agreement to carry out search or prospecting, exploration and production activities within the territory of Vietnam.

Article 2. Definition

Oil and gas industry operators refers to entities or persons acting on behalf of parties to an oil and gas agreement to exercise their delegated authority to manage oil and gas operations (hereinafter referred to as O&G Operator).

For the purpose of this Circular, abbreviations and acronyms, such as JOC, POC and PSC, shall be construed as follows:

1. JOC refers to a form of joint operating company. Under terms and conditions of an oil and gas agreement, Contractors agree to establish a joint operating company that plays its role as an agent for contracting parties to carry out oil and gas search, prospecting, exploration, development and extraction activities within an agreed field area, and functions as the exclusive operator acting on behalf of these Contractors to implement its delegated rights and obligations in accordance with joint operating agreements and decisions granted by the Management Committee.

2. PSC refers to a form of production sharing agreement under which capital contributors assign one operator of that agreement that acts on behalf of these capital contributors to carry out oil and gas search, prospecting, exploration, resource volume estimate, evaluation, development and extraction activities within powers, agreements and requirements provided in the production sharing agreement.

3. POC refers to a form of joint operating agreement under which Contractors agree to establish an oil and gas production operating company of which the operator is Vietnam National Oil and Gas Group (PVN) representing the Vietnam side.

Article 3. Accounting scripts

1. Where the oil and gas agreement requires usage of foreign language scripts, such requirement must be observed and Vietnamese translation versions are provided as specifically requested by regulatory authorities.

2. Where the oil and gas agreement does not require usage of foreign language scripts in accounting operations, scripts used in accounting records, books and financial statements in Vietnam must be Vietnamese. Where it is necessary to use a foreign language, both Vietnamese-language and foreign-language scripts are mandatory.

Article 4. Accounting currency unit

1. Where an accounting currency unit is prescribed in the oil and gas agreement, provisions of that agreement in terms of the accounting currency must be abided by.

2. Where an accounting currency unit is not prescribed in the oil and gas agreement, the currency unit must conform to regulations of the Law on Accounting and written guidance for that Law.

Chapter II

GUIDANCE ON THE ACCOUNTING FOR OIL AND GAS INDUSTRY OPERATORS

Article 5. Chart of accounts

1. The O&G Operator shall apply the chart of accounts prescribed in the applicable corporate accounting policy with certain existing accounts to be revised, renamed and new accounts to be added as follows:

a) Adding Account 246 – “Prospecting, exploration and resource volume estimate costs”. This account reflects oil and gas search, exploration and resource volume estimate costs and progress of settlement thereof. The search, exploration and resource volume estimate costs referred to in the oil and gas agreement shall be recorded in detail depending on specific oil and gas agreements.

b) Adding Account 247 – “Oil and gas development costs”. This account reflects costs incurred during oil and gas development, and final settlement of oil and gas development capital value referred to in oil and gas agreements.

c) Adding Account 248 – “Other costs”. This account reflects costs incurred during the oil and gas production stage under specific oil and gas agreements.

d) Adding Account 249 – “Unrecoverable costs”: This account reflects costs incurred in the stage of search, prospecting, exploration, reserve estimate or evaluation, oilfield development and production of which recovery is not allowed under terms and conditions of the oil and gas agreement, and costs which are suspended or eliminated during an audit in accordance with the PVN’s audit report.

dd) Adding Account 251 – “Recovered costs”: This account reflects an amount of costs which have been recovered by using the cost oil on a first-incurred, first-recovered basis as prescribed by the oil and gas agreement.

e) Renaming Account 341 – “Long-term loan” as “Other Contractor’s paid-in capital”: This account reflects the monetary amount contributed by other Contractor other than the Parent company – an operator participating in the oil and gas agreement. Account 341 – Other Contractor’s paid-in capital is divided into 2 sub-accounts, including:

- Account 3411 – “Other Contractor’s paid-in capital”: This account reflects the amount of capital contributed by the Contractor parties in accordance with the oil and gas agreement.

- Account 3412 – “Recovery of other Contractor’s paid-in capital”: This account reflects the amount of capital contribution by the Contractor parties which has been recovered by using the cost oil on a first-incurred, first-recovered basis.

g) Renaming Account 411 – “Business capital source” as “Operator Parent company’s paid-in capital”. This account reflects availability of, and increase or decrease in, the amount of capital contribution by the operator Parent company as prescribed by the oil and gas agreement. Account 411 – Operator Parent company’s paid-in capital is divided into 2 subaccounts, including:

- Account 4111 – “Operator Parent company’s paid-in capital”: This account reflects the amount of capital contribution by the Contractor Parent company as prescribed by the oil and gas agreement.

- Account 4112 – “Recovery of operator Parent company’s paid-in capital”: This account reflects the amount of capital contribution by the operator Parent company which has been recovered by using the cost oil on a first-incurred, first-recovered basis.

h) Renaming Account 642 – “General and administrative expenses” as “Administrative overhead costs”. This account reflects costs incurred by managerial and administrative divisions of the O&G Operator during a given accounting period.

2. The chart of accounts, including accounts subject to the abovementioned revisions, shall be issued in the Appendix 01 hereto. Where the O&G Operator carries out other economic transactions, relevant accounts which are not listed in the chart of accounts referred to in this Circular but listed in the chart of accounts referred to in the applicable corporate accounting policy shall not be subject to application for the Ministry of Finance’s approval.

Article 6. Accounting for the prospecting, exploration and resource volume estimate costs

1. The account 246 - prospecting, exploration resource volume estimate costs reflects oil and gas search, exploration and resource volume estimate costs incurred during the process of searching for, exploring and estimating the reserve of oil and gas. These costs shall be recorded in detail depending on specific oil and gas agreements.

2. Accounting principles

a) Prospecting, exploration and resource volume estimate costs are the costs incurred to serve the purpose of prospecting for and evaluating oil and gas potentiality, determining existence of resources and likelihood of commercial extraction of oil and gas within a sedimentary bed, formation, cluster, block or basin, including preparation, geological, geophysical, geochemical and other survey; analysis, research, well drilling and sealing; well testing; well completion; well repair; well abandonment; resource volume estimate plans and other activities. The prospecting, exploration and resource volume estimate costs may include:

- Costs associated with collection of geophysical, geochemical, geological documents, topographic map of oil-bearing stratum, and collection of drilling data including processing, reprocessing, analysis and demonstration of data;

- Costs of personnel, input materials, fuels, raw material reserves, equipment and services used for drilling exploration and appraisal wells;

- Administrative overhead costs distributed for oil and gas search, exploration and estimate activities;

- Other costs directly related to the oil and gas prospecting, exploration and estimate stage.

b) Where the oil and gas agreement prescribes the following earnings recorded as decreases in prospecting, exploration and reserve estimate costs, the O&G Operator is entitled to do so (after entirely discharging obligations to the State Bank in accordance with laws and regulations where applicable):

- Earnings derived from the produced oil and gas which can be used for offsetting gas and oil prospecting, exploration and resource volume estimate costs

- Earnings derived from insurance or indemnity directly related to prospecting, exploration and reserve estimate activities;

- Earnings derived from sublease of assets directly related to prospecting, exploration and reserve estimate activities;

- Earnings derived from liquidation of assets directly related to prospecting, exploration and reserve estimate activities;

- Other earnings directly related to prospecting, exploration and reserve estimate activities.

Where the said earnings relate to various activities and are unlikely to be separately accounted for with respect to separate activities such as search, exploration and reserve estimate, development and extraction, the O&G Operator must distribute amounts of these earnings and calculate them as offsets against costs (e.g. search, exploration, reserve estimate, oilfield development and other costs) according to the most appropriate formula with reference to specific types of oil and gas agreement and nature of operations performed by the O&G Operator.

c) When the validity term of the oil and gas agreement ends, the O&G Operator must keep final accounts of prospecting, exploration and reserve estimate costs and those which have already been recovered. Positive difference between the amount of search, exploration and reserve estimate costs in one side and the amount of costs actually recovered in the other side shall be recorded as a decrease in portions of capital contribution made by contracting parties.

d) The O&G Operator shall consolidate and keep track of details of recoverable costs of prospecting, exploration and resource volume estimate and costs which are not recovered under specific terms and conditions of oil and gas agreement. The O&G Operator can divide the Account 246 - Prospecting, exploration and resource volume estimate costs – into secondary or tertiary accounts where appropriate for its managerial requirements.

3. Contents, composition of, and method for posting entries to, the Account 246 - Prospecting, exploration and resource volume estimate costs.

Debit: Costs incurred from oil and gas prospecting, exploration and resource volume estimate activities during a given accounting period.

Credit:

- Other earnings recorded as offsets against prospecting, exploration and resource volume estimate costs.

- Carryover of prospecting, exploration and resource volume estimate costs upon termination of the oil and gas agreement.

Debit balance: Prospecting, exploration and resource volume estimate costs accrued as of the reporting date.

4. Method of accounting for the prospecting, exploration and resource volume estimate costs

a) If prospecting, exploration and resource volume estimate costs involved in the oil and gas agreement are incurred, including geological – geophysical and drilling costs, the following entries are recorded:

Debit A/C 246 - Prospecting, exploration and resource volume estimate costs.

Debit A/C 133 – Deductible VAT

Credit A/C 111, 112, 331.

b) Where the oil and gas agreement provides that raw materials, tools or instruments purchased are not included as part of prospecting, exploration and resource volume estimate costs, but recorded as a type of cost when being used for the purpose of oil and gas prospecting, exploration and resource volume estimate, receiving procedures and accounting for these items purchased must be performed in accordance with applicable laws and regulations. If these raw materials, tools or instruments are dispatched out of inventory to be consumed for prospecting, exploration and resource volume estimate activities, the following entries shall be recorded as follows:

Debit A/C 246 - Prospecting, exploration and resource volume estimate costs.

Credit A/C 152, 153.

c) If administrative overhead costs are, on periodic basis, allocated to prospecting, exploration and resource volume estimate costs, the following entries shall be recorded as follows:

Debit A/C 246 - Prospecting, exploration and resource volume estimate costs.

Credit Account 642 – Administrative overhead costs.

d) Accounting for income generated from insurance or indemnity claims concerning oil and gas operations, receipts derived from subleasing of property ownership right to third parties, amounts received from suppliers to compensate for supplies of raw materials failing to conform to agreed quality standards and specifications which have been previously recorded as part of the costs; income generated from liquidation of raw materials or assets which have been previously recorded as part of the costs but are no longer necessary for gas and oil operations, and other income directly associated with oil and gas prospecting, exploration and resource volume estimate activities (after discharging tax obligations in accordance with laws and regulations, where applicable) which is recorded for the purpose of offsetting prospecting, exploration and resource volume estimate costs, as prescribed by the oil and gas agreement, shall be performed by posting the following entries:

Debit A/C 111, 112.

Credit A/C 246 - Prospecting, exploration and resource volume estimate costs (if recorded as a decrease in recovered costs).

Credit A/C 338 – Other payables (if paid back to PVN)

Credit A/C 33311 – Output VAT payable (where applicable)

e) Upon termination of the oil and gas agreement, the O&G Operator shall perform carryover of recovered prospecting, exploration and resource volume estimate costs and record the following entries:

Debit A/C 251 – Recovered costs

Credit A/C 246 - Prospecting, exploration and resource volume estimate costs.

g) Where prospecting, exploration and resource volume estimate costs incurred are greater than recovered amount of costs upon termination of the oil and gas agreement, the difference amount shall be recorded as a decrease in paid-in capital of parties, the following entries are recorded as follows:

Debit A/C 3411, 4111.

Credit A/C 246 - Prospecting, exploration and resource volume estimate costs.

Article 7. Accounting for oil and gas development costs

1. Account 247 – Oil and gas development costs reflects costs incurred from the oil and gas development process. Oil and gas development costs shall be tracked in detail depending on specific oil and gas agreements.

2. Accounting principles

a) Oil and gas development costs are all direct and indirect costs relating to development of one or more oil and gas wells within a development area as prescribed by the oil and gas agreement, including:

- Costs incurred from drilling and completion of development wells, inclusive of costs of geological survey incidental to drilling and design of borewells and costs related to other drilling activities in the development stage;

- Costs of construction and development of oil and gas wells, including costs incurred from oil and gas well design, mapping of oil and gas extraction technology, design and construction of the drilling rig and pipelines, preparation of feasibility studies, extraction technology design and other costs incurred in the oil and gas development process;

- Costs of non-reusable labor, consumable materials and services incurred during the process of drilling new wells and deepening existing wells;

- Administrative overhead costs allocated to oil and gas development activities;

- Other costs directly related to oil and gas development operations.

b) Where the oil and gas agreement prescribes the following earnings recorded as decreases in oil and gas development costs, the O&G Operator is entitled to do so in accordance with the oil and gas agreement (after totally discharging obligations to the State Bank in accordance with laws and regulations where applicable):

- Earnings derived from the produced oil and gas which can be used for offsetting oil and gas development costs;

- Earnings derived from insurance or indemnity directly related to the oil and gas development process;

- Earnings derived from subletting of assets to third parties which are directly related to the oil and gas development process;

- Earnings derived from liquidation of assets directly related to the oil and gas development process;

- Other costs directly related to oil and gas development operations.

Where the said earnings relate to various activities and are unlikely to be separately accounted for with respect to separate activities such as oil and gas search, exploration, resource volume estimate, development and extraction, the O&G Operator must distribute amounts of these earnings and calculate them as offsets against costs (e.g. search, exploration, resource volume estimate, development and other costs) according to the most appropriate formula with reference to specific types of oil and gas agreement and nature of operations performed by the O&G Operator.

c) When the validity term of the oil and gas agreement ends, the O&G Operator must keep final accounts of oil and gas development costs and those costs which have already been recovered. Positive difference between the amount of oil and gas development costs in one side and the amount of costs actually recovered in the other side shall be recorded as a decrease in portions of capital contribution made by contracting parties.

d) The O&G Operator shall consolidate and keep track of details of recoverable oil and gas development costs and costs which are not recovered under specific terms and conditions of oil and gas agreement. The O&G Operator can divide the Account 247 – Oil and gas development costs – into secondary or tertiary accounts where appropriate for its managerial requirements.

3. Contents, composition of, and method for posting entries to, the Account 247 – Oil and gas development costs.

Debit: Costs incurred from oil and gas development activities in accordance with the oil and gas agreement during a given accounting period.

Credit:

- Carryover of oil and gas development costs upon termination of the oil and gas agreement;

- Other earnings recorded as offsets against oil and gas development costs.

Debit balance: Oil and gas development costs accrued as of the reporting date.

4. Method of accounting for oil and gas development costs

a) Where costs directly related to oil and gas development operations are incurred, the following entries shall be recorded as follows:

Debit A/C 247 - Oil and gas development costs

Debit A/C 133 – Deductible VAT

Credit A/C 111, 112, 331.

b) Where the oil and gas agreement provides that raw materials, tools or instruments purchased are not included as part of oil and gas development costs, but recorded as a kind of cost when being used, receiving procedures and accounting for these items purchased must be performed in accordance with applicable laws and regulations. If these raw materials, tools or instruments are dispatched out of inventory to be consumed for oil and gas development activities, the following entries shall be recorded as follows:

Debit A/C 247 - Oil and gas development costs

Credit A/C 152, 153.

c) If administrative overhead costs are, on periodic basis, allocated to oil and gas development costs, the following entries shall be recorded as follows:

Debit A/C 247 - Oil and gas development costs

Credit Account 642 – Administrative overhead costs.

d) Accounting for income generated from insurance or indemnity claims concerning oil and gas operations, receipts derived from subletting of property ownership right to third parties, amounts received from suppliers to compensate for supplies of raw materials failing to conform to agreed quality standards and specifications which have been previously recorded as part of the costs; income generated from liquidation of raw materials or assets which have been previously recorded as part of the costs but are no longer necessary for gas and oil operations, and other income directly associated with oil and gas development activities (after discharging all tax obligations in accordance with laws and regulations, where applicable) which is recorded for the purpose of offsetting oil and gas development costs, shall be performed by posting the following entries:

Debit A/C 111, 112.

Credit A/C 247 – Oil and gas development costs (if recorded as a decrease in recovered costs).

Credit A/C 338 – Other payables (if paid back to PVN)

Credit A/C 33311 – Output VAT payable (where applicable)

e) The O&G Operator shall carry over oil and gas development costs which have already been recovered upon termination of the oil and gas agreement by posting the following entries:

Debit A/C 251 – Recovered costs

Credit A/C 247 - Oil and gas development costs.

g) Where oil and gas development costs incurred are greater than recovered amount of costs upon termination of the oil and gas agreement, the differential amount shall be recorded as a decrease in paid-in capital of contracting parties, the following entries are recorded as follows:

Debit A/C 3411, 4111.

Credit A/C 247 - Oil and gas development costs.

Article 8. Extraction accounting

1. Account 248 – Extraction costs – reflects costs incurred during the oil and gas extraction or production stage.

2. Accounting principles

a) Extraction costs are composed of all of costs allocated directly or indirectly, or incurred, in the crude oil and natural gas extraction process provided in particular oil and gas agreements, even including administrative overhead costs allocable to extraction costs under terms and conditions of the oil and gas agreement. The extraction costs may include:

- Costs of operation and maintenance of necessary facilities, scheduling and direction thereof;

- Costs of oil and gas flow measurement, well testing, flow assurance and collection;

- Costs of processing, storage and transportation of crude oil and natural gas from oil and gas basins to transit stations;

- Administrative overhead costs allocated to other oil and gas extraction activities;

- Costs of clearing for closure of oil and gas extraction sites;

- Other costs directly related to oil and gas extraction operations.

b) Where the oil and gas agreement prescribes the following earnings recorded as decreases in oil and gas extraction costs, the O&G Operator is entitled to do so in accordance with the oil and gas agreement (after fully discharging its obligations to the State Bank in accordance with laws and regulations where applicable):

- Earnings derived from the produced oil and gas which can be used for offsetting oil and gas extraction costs;

- Earnings derived from insurance or indemnity directly related to the oil and gas extraction process;

- Earnings derived from subletting of assets to third parties which are directly related to the oil and gas extraction process;

- Earnings derived from liquidation of assets directly related to the oil and gas extraction process;

- Other income directly related to oil and gas extraction operations.

Where the said earnings relate to various activities and are unlikely to be separately accounted for with respect to separate activities such as search, exploration and resource volume estimate, development and extraction, the O&G Operator must distribute amounts of these earnings and calculate them as offsets against costs (e.g. oil and gas search, exploration, resource volume estimate, development and other costs) according to the most appropriate formula with reference to specific types of oil and gas agreement and nature of operations performed by the O&G Operator.

c) On a regular basis, the O&G Operator must provide margins to the host country (represented by PVN) as the reserve fund to secure financial obligations concerning clearing of production wells and restoration of the original site which are charged to extraction costs. Where the amount of money set aside for that reserve fund is greater than actual costs incurred from production well clearing and abandonment, part of the fund which is not used up shall be recorded as a decrease in oil and gas extraction costs (if all costs are not fully recovered), or reflected as an amount payable to parties to the oil and gas agreement.

d) When the validity term of the oil and gas agreement ends, the O&G Operator must keep final accounts of extraction costs and those costs which have already been recovered. Positive difference between the amount of oil and gas extraction costs in one side and the amount of costs actually recovered in the other side shall be recorded as a decrease in portions of capital contribution made by contracting parties.

dd) The O&G Operator shall consolidate and keep track of details of recoverable oil and gas extraction costs in accordance with particular oil and gas agreements. The O&G Operator can divide the Account 248 – Oil and gas extraction costs – into secondary or tertiary accounts where appropriate for its managerial requirements. The O&G Operator can create a secondary Account to separately keep track of capitalized costs and costs incurred during the accounting period at the oil and gas extraction or production stage.

3. Contents, composition of, and method for posting entries to, the Account 248 – Oil and gas extraction costs.

Debit: Costs incurred from oil and gas extraction activities in accordance with the oil and gas agreement during a given accounting period.

Credit:

- Carryover of oil and gas extraction costs upon termination of the oil and gas agreement;

- Other income recorded as an offset against oil and gas extraction costs.

Debit balance: Oil and gas extraction costs accrued as of the reporting date.

4. Method of accounting for oil and gas extraction costs

a) Where costs directly related to oil and gas extraction operations are incurred, the following entries shall be recorded as follows:

Debit A/C 248 – Oil and gas extraction costs

Debit A/C 133 – Deductible VAT

Credit A/C 111, 112, 331.

b) Where the oil and gas agreement provides that raw materials, tools or instruments purchased are not included as part of oil and gas extraction costs, but only charged to the costs when being put into use, receiving procedures and accounting for these items purchased must be performed in accordance with applicable laws and regulations. If these raw materials, tools or instruments are dispatched out of inventory to be consumed for oil and gas extraction activities, the following entries shall be recorded as follows:

Debit A/C 248 – Oil and gas extraction costs

Credit A/C 152, 153.

c) If administrative overhead costs are, on periodic basis, allocated to oil and gas extraction costs, the following entries shall be recorded as follows:

Debit A/C 248 – Oil and gas extraction costs

Credit Account 642 – Administrative overhead costs.

d) Accounting for income generated from insurance or indemnity claims concerning oil and gas operations, receipts derived from subletting of property ownership right to third parties, amounts received from suppliers to compensate for supplies of raw materials failing to conform to agreed quality standards and specifications which have been previously recorded as part of the costs; income generated from liquidation of raw materials or assets which have been previously recorded as part of the costs but are no longer necessary for gas and oil operations, and other income directly associated with oil and gas extraction activities (after discharging all tax obligations in accordance with laws and regulations, where applicable) which is recorded for the purpose of offsetting oil and gas extraction costs, shall be performed by posting the following entries:

Debit A/C 111, 112.

Credit A/C 248 – Oil and gas extraction costs (if recorded as a decrease in recovered costs).

Credit A/C 338 – Other payables (if paid back to PVN)

Credit A/C 33311 – Output VAT payable (where applicable)

e) Upon setting aside the reserve fund to secure financial obligations concerning clearing of immovable facilities, devices and equipment, the following entries shall be posted as follows:

Debit A/C 248 – Oil and gas extraction costs

Credit A/C 335 - Costs payable.

f) Upon completion of clearing of oil and gas production wells, if the reserve fund is not used up, the remaining amount shall be handled as follows:

- Where Contractor parties have yet to recover all of their costs, such remaining amount shall be offset against oil and gas extraction costs and posted into the following accounts:

Debit A/C 335 - Costs payable

Credit A/C 248 – Oil and gas extraction costs.

- Where Contractor parties have already recovered all costs, the remaining amount of the fund after payment of profit to the host country shall be reflected as other payable to contracting parties in the following specific circumstances:

+ If the O&G Operator acts on behalf of contracting parties to pay the portion of profit distributable to the host country to the State Budget, the following accounts shall be recorded as follows:

Debit A/C 335 - Costs payable

Credit A/C 333 - Taxes and accounts payable to the State Budget (profit distributable to the host country)

Credit A/C 338 – Other costs payable.

+ If PVN retains the portion of profit distributable to the host country, the following entries shall be recorded as follows:

Debit A/C 335 - Costs payable

Credit A/C 244 – Deposits or pledges (Portion of profit distributable to the host country)

Credit A/C 338 – Other costs payable.

g) The O&G Operator shall carry over oil and gas extraction costs which have already been recovered upon termination of the oil and gas agreement by posting the following entries:

Debit A/C 251 – Recovered costs

Credit A/C 248 – Oil and gas extraction costs.

h) Where oil and gas extraction costs incurred are greater than recovered amount of costs upon termination of the oil and gas agreement, the differential amount shall be recorded as a decrease in paid-in capital of contracting parties, the following entries are recorded as follows:

Debit A/C 3411, 4111.

Credit A/C 248 – Oil and gas extraction costs.

Article 9. Accounting for unrecoverable costs

1. Account 249 – Unrecoverable costs – reflects the amount of costs which are not recovered as prescribed by the oil and gas agreement, and costs which are suspended or eliminated during an audit according to the audit report prepared by PVN.

2. Accounting principles

The O&G Operator shall consolidate and keep track of details of unrecoverable costs over prospecting, exploration and resource volume estimate stages; oil and gas development and extraction stages. The O&G Operator can divide the Account 249 – Unrecoverable costs – into secondary or tertiary accounts where appropriate for its managerial requirements.

3. Contents, composition of, and method for posting entries to, the Account 249 – Unrecoverable costs

Debit: Unrecoverable costs incurred over prospecting, exploration and resource volume estimate stages; oil and gas development and extraction stages during a specified accounting period.

Credit:

- Unrecoverable costs that conform to statutory requirements laws and oil, and gas agreement, and are re-classified as recoverable costs;

- Any decrease in recoverable costs recorded upon termination of the oil and gas agreement.

Debit balance: Unrecoverable costs accrued as of the reporting date.

4. Method of accounting for unrecoverable costs

a) When costs incurred at prospecting, exploration and resource volume estimate stages; oil and gas development and extraction stages, are defined as unrecoverable costs, entries shall be posted to the following accounts:

Debit A/C 249 – Unrecoverable costs

Credit A/C 246, 247, 248.

b) When unrecoverable costs conform to statutory requirements laws and oil, and gas agreement, and are re-classified as recoverable costs, entries shall be posted to the following accounts:

Debit A/C 246, 247, 248

Credit A/C 249 – Unrecoverable costs.

c) Accountants shall record any decrease in recoverable costs and amount of paid-in capital of contracting parties upon termination of the oil and gas agreement by posting the following entries:

Debit A/C 3411, 4111.

Credit A/C 249 – Unrecoverable costs.

d) Upon liquidating the amount of raw materials, tools or instruments held in stock which have yet to be dispatched for oil and gas operations:

- If the proceeds obtained from liquidation thereof are less than the specified book value thereof, accountants must post the following entries to relevant accounts as follows:

Debit A/C 111, 112, 131, etc. Amount of proceeds generated from liquidation

Debit A/C 249 – Unrecoverable costs (Negative difference between the amount of proceeds generated from liquidation and the specified book value of these raw materials, tools or instruments subject to liquidation)

Credit A/C 152, 153 (Book value of raw materials, tools or instruments subject to liquidation)

Credit A/C 3331 – Output VAT payable (where applicable)

- If the proceeds obtained from liquidation thereof are greater than the specified book value thereof, accountants must post the following entries to relevant accounts as follows:

Debit A/C 111, 112, 131, etc. Amount of proceeds generated from liquidation

Credit A/C 152, 153 (Book value of raw materials, tools or instruments subject to liquidation)

Credit A/C 249 – Unrecoverable costs (Positive difference between the amount of proceeds generated from liquidation and the specified book value of these raw materials, tools or instruments subject to liquidation)

Credit A/C 3331 – Output VAT payable (where applicable)

Article 10. Accounting for recoverable costs

1. Account 251 – Recoverable costs – reflects the amount of costs incurred at prospecting, exploration and resource volume estimate stages; oil and gas development and extraction stages, which has already been recovered through the cost oil derived from the actual oil output (exclusive of the volume of profit oil) in each quarter of the accounting year. Costs incurred from oil and gas operations shall be recovered on first-incurred, first-recovered basis.

2. Accounting principles

The O&G Operator shall consolidate and keep track of details of recoverable costs over prospecting, exploration and resource volume estimate stages; oil and gas development and extraction stages. The O&G Operator can divide the Account 251 – Recoverable costs – into secondary or tertiary accounts where appropriate for its managerial requirements.

3. Contents, composition of, and method for posting entries to, the Account 251 – Recoverable costs

Debit: Carryover of costs already recovered at prospecting, exploration and resource volume estimate stages; oil and gas development and extraction stages upon termination of the oil and gas agreement.

Credit: Recoverable costs incurred at prospecting, exploration and resource volume estimate stages; oil and gas development and extraction stages during a specified accounting period.

Credit balance: Amount of recoverable costs accrued as of the reporting date.

4. Method of accounting for recoverable costs

a) When the Contractor recovers oil and gas operating costs by using the cost oil, the following entries shall be posted to relevant accounts as follows:

Debit A/C 3412 – Paid-in capital recovered by Contractor parties

Debit A/C 4112 – Paid-in capital recovered by the operator Parent company

Credit A/C 251 – Recoverable costs.

b) The O&G Operator shall carry over cost amounts which have already been recovered upon termination of the oil and gas agreement by posting the following entries:

Debit A/C 251 – Recoverable costs

Credit A/C 246, 247, 248.

Article 11. Accounting for corporate income tax

1. Accounting principles

a) The O&G Operator must fulfill its corporate income tax obligations with respect to income amounts or amounts recorded as an offset against any cost incurred during a given accounting period in accordance with applicable laws and regulations.

b) Corporate income tax (CIT) payable shall be reported in accounting records as an amount of deduction from total income generated during a given accounting period. With respect to income amounts recorded as offsets against prospecting, exploration, resource volume estimate, development and extraction costs as prescribed by the oil and gas agreement, the O&G Operator shall do so only after paying corporate income tax (if laws on tax provides that such income amounts are taxable).

2. Method of accounting for corporate income tax

- Where there are CIT-taxable amounts, the O&G Operator must reflect CIT amounts payable by posting the following entries to relevant accounts as follows:

Debit A/C 515, 711.

Credit A/C 3334 – CIT tax payable.

- With respect to income amounts recorded as offsets against prospecting, exploration, resource volume estimate, development and extraction costs, after the CIT tax has been paid as provided by laws (where applicable), the following entries shall be posted to relevant accounts:

Debit A/C 111, 112, 131, 138

Credit A/C 246, 247, 248

Credit A/C 3334 – CIT tax payable (where applicable).

- With respect to payment to the State Budget, the following entries shall be posted to relevant accounts as follows:

Debit A/C 3334 – CIT tax payable

Credit A/C 111, 112

Article 12. Accounting for VAT deductions at the oil and gas extraction stage

1. During the extraction stage at which there are revenues generated from sale of oil and gas, if the input VAT deductible arises, the O&G Operator can deduct that input VAT from the amount of output VAT payable. In cases where the O&G Operator is only responsible for filing the tax returns on behalf of the Contractor but not directly paying the output VAT tax, accountants shall refer to such tax returns to record entries to the following accounts:

Debit A/C 138 – Other receivable.

Credit A/C 133 – Input VAT deductible.

2. Upon receipt of the Contractor party’s decision to record a decrease in the amount of paid-in capital according to the proportion of capital contribution to the amount of VAT deductible, accountants shall post the following entries to relevant accounts:

Debit A/C 4111 – Paid-in capital of the operator Parent company

Debit A/C 3411 – Paid-in capital of other Contractor parties

Credit A/C 138 – Other receivable.

3. Other regulations on accounting for VAT tax shall be the same as those set forth in the applicable corporate accounting policy.

Article 13. Accounting for paid-in capital of Contractor parties

1. Paid-in capital recognition principles

a) The O&G Operator shall keep separate records of details of paid-in capital received from each Contractor party to the oil and gas agreement on the basis of the realized capital contribution.

b) If the O&G Operator exists in the POC form or is hired to hold the post as the O&G Operator (does not make capital contribution to participate in the oil and gas agreement), it shall post the entry of capital amount paid in by Contractor parties to the Account 341 – Paid-in capital of other Contractor parties.

c) If the O&G Operator operates in the form of JOC and PSC under terms and conditions of the oil and gas agreement, recognition of capital paid in by contracting parties shall adhere to the following principles:

- Portion of paid-in capital of the operator Parent company which is recorded as the owner’s investment shall, upon being realized, be posted to the Account 411 – Paid-in capital of the operator Parent company.

- Portion of paid-in capital obtained from other contracting parties shall be recorded as liability accounts and posted to the Account 341 – Paid-in capital of other Contractors.

d) Upon termination of the oil and gas agreement, the O&G Operator must record a decrease in paid-in capital of parties with respect to the volume of cost oil and the amount of unrecoverable costs.

2. Composition and contents of the Account 341 – Paid-in capital of other Contractor parties

a) Composition and contents of the Account 3411 – Paid-in capital of other Contractor parties

Debit: Amount of paid-in capital of other Contractor parties subject to a decrease resulting from recovery of paid-in capital upon termination of the oil and gas agreement.

Credit: Actual amount of capital paid in by other Contractor parties during a given accounting period.

Credit balance: Actual amount of capital paid in by other Contractor parties at the reporting date.

b) Composition and contents of the Account 3412 – Paid-in capital recovered by other Contractor parties

Debit: Amount of paid-in capital of other Contractor parties recovered by the cost oil produced during the accounting period.

Credit: Carryover of paid-in capital recovered by the cost oil for offset against paid-in capital of other Contractor parties upon termination of the oil and gas agreement.

Debit balance: Amount of paid-in capital of other Contractor parties recovered by the cost oil which is accrued as of the accounting period.

3. Composition and contents of the Account 411 – Paid-in capital of the operator Parent company

a) Composition and contents of the Account 4111 – Paid-in capital of the operator Parent company

Debit: Amount of paid-in capital of the operator Parent company subject to a decrease resulting from recovery of paid-in capital upon termination of the oil and gas agreement.

Credit: Actual amount of paid-in capital of the operator Parent company arising during the accounting period.

Credit balance: Actual amount of paid-in capital of the operator Parent company arising as of the reporting date.

b) Composition and contents of the Account 3412 – Paid-in capital recovered by other Contractor parties

Debit: Amount of paid-in capital of the operator Parent company recovered by the cost oil produced during the accounting period.

Credit: Carryover of paid-in capital amount recovered by the cost oil for offset against paid-in capital of the operator Parent company upon termination of the oil and gas agreement.

Debit balance: Amount of paid-in capital of the operator Parent company recovered by the cost oil that is accrued as of the reporting date.

4. Method of accounting for paid-in capital of contracting parties

a) In the circumstance when the O&G Operator receives paid-in capital from parties to the oil and gas agreement:

- If one party involved in capital contribution is appointed and accepted as the O&G Operator acting on behalf of the Contractor to implement agreed duties and obligations, upon receipt of capital paid in by Contractor parties, the entries are posted to the following accounts:

Debit A/C 111, 112.

Credit A/C 3411 – Other Contractor’s paid-in capital (Respective paid-in capital of contracting parties - Details thereof for each Contractor)

Credit A/C 4111 – Operator Parent company’s paid-in capital (Respective paid-in capital of the operator Parent company as prescribed by the oil and gas agreement).

- In either cases where the O&G Operator is established in the JOC form to represent capital contribution parties that are assigned their persons to participate in joint operation activities or the O&G Operator is hired to manage oil and gas prospecting, exploration, resource volume estimate, development and extraction operations, upon receipt of capital paid in by Contractor parties, the entries shall be posted to the following accounts:

Debit A/C 112 – Bank deposits

Credit A/C 3411 – Paid-in capital of other Contractor parties.

b) If income generated from interest on deposits (after fulfilling obligations to the State Budget) is recorded as an increase in paid-in capital of contracting parties, the entries shall be posted to the following accounts:

Debit A/C 515 - Revenue earned from financial transactions

Credit A/C 3411 – Paid-in capital of other Contractor parties (Portion thereof paid to other parties)

Credit A/C 4111 – Paid-in capital of the operator Parent company

Credit A/C 333 - Taxes and accounts payable to the State Budget.

c) Where other income (other than income recorded as offset against costs incurred) shall, after being used for discharging obligations to the State Budget, be recorded as an increase in paid-in capital of parties as prescribed by the oil and gas agreement, the entries shall be posted to the following accounts:

Debit A/C 711 – Other income

Credit A/C 3411 – Paid-in capital of other Contractor parties

Credit A/C 4111 – Paid-in capital of the operator Parent company

Credit A/C 333 - Taxes and accounts payable to the State Budget.

d) Paid-in capital recovered by the cost oil shall, on a periodic basis, be posted to the following accounts:

Debit A/C 3412 – Paid-in capital recovered by other Contractor parties

Debit A/C 4112 – Paid-in capital recovered by the operator Parent company

Credit A/C 251 – Recoverable costs.

dd) During the extraction stage at which there are revenues generated from sale of oil and gas, if the input VAT deductible arises, the O&G Operator can deduct that input VAT from the amount of output VAT payable. Upon determining the VAT payable during the accounting period, the O&G Operator shall rely on the tax returns in which accountants have recorded a decrease in paid-in capital of Contractor parties according to the proportion of capital contribution to the VAT tax deductible to post the following entries:

Debit A/C 4111 – Paid-in capital of the operator Parent company

Debit A/C 3411 – Paid-in capital of other Contractor parties

Credit A/C 133 – Input VAT deductible.

e) Accountants shall record a decrease in paid-in capital of parties in proportion to the amount of paid-in capital which has been recovered upon termination of the oil and gas agreement by posting the following entries:

Debit A/C 3411 – Other Contractor’s paid-in capital (Respective paid-in capital of contracting Contractor parties - Details thereof for each Contractor)

Debit A/C 4111 – Paid-in capital of the operator Parent company

Debit A/C 3412 – Paid-in capital recovered by other Contractor parties

Debit A/C 4112 – Paid-in capital recovered by the operator Parent company.

f) Upon termination of the oil and gas agreement, where oil and gas operating costs have not been fully recovered, the O&G Operator must record a decrease in paid-in capital of parties equivalent to the amount of unrecoverable costs by posting the following entries:

Debit A/C 4111 – Paid-in capital of the operator Parent company

Debit A/C 3411 – Paid-in capital of other Contractor parties

Credit A/C 246, 247, 248.

g) Accountants shall record a decrease in unrecoverable costs and amount of paid-in capital of parties upon termination of the oil and gas agreement by posting the following entries:

Debit A/C 3411, 4111.

Credit A/C 249 – Unrecoverable costs.

h) Upon return of paid-in capital to parties, the entries shall be posted as follows:

Debit A/C 3411 – Paid-in capital of other Contractor parties

Debit A/C 4111 – Paid-in capital of the operator Parent company

Credit A/C 112 – Bank deposits.

Article 14. Accounting for asset liquidation

1. Accounting principles

a) The O&G Operator shall be responsible for transferring assets to PVN after fully recovering costs which are no longer necessary for oil and gas operations. If PVN refuses to accept these assets, the O&G Operator can liquidate these assets to earn proceeds which are then paid to PVN.

b) Where oil and gas operating costs have not been fully recovered, but assets are no longer necessary for oil and gas operations, subject to the PVN's approval, the O&G Operator can determine on these assets. Proceeds from liquidation or disposal of these assets shall be recorded as an offset against recoverable costs incurred from oil and gas operations (after all tax obligations referred to in laws on tax, where applicable, have been discharged).

c) In cases where the oil and gas agreement provides that raw materials, tools or instruments are only chargeable to recoverable costs when being dispatched out of inventory for use in oil and gas operations, if these items which have not been dispatched out of inventory for oil and gas operations are held on inventory but no longer necessary for oil and gas operations, the O&G Operator can liquidate them (at the request of Contractors), the amount of difference between proceeds earned from liquidation thereof and the book value thereof shall be charged to unrecoverable costs.

2. Accounting method:

a) Where costs have not been fully recovered, the amount of proceeds from asset liquidation from which costs incurred from liquidation and disposal of these assets are deducted, and which is used for discharging obligations to the State Budget (where applicable), shall be recorded into the following accounts:

Debit A/C 111, 112.

Credit A/C 331, 333

Credit A/C 246, 247, 248.

b) Where oil and gas operating costs have been fully recovered as prescribed, the amount of proceeds from asset liquidation from which costs incurred from liquidation, disposal of these assets are deducted, and which is used to discharge tax obligations in accordance with laws on tax (where applicable) shall be transmitted to PVN and recorded into the following accounts:

Debit A/C 111, 112.

Credit A/C 331, 333

Credit A/C 338 – Other payables (Details of accounts payable to PVN).

c) Upon liquidating the amount of raw materials, tools or instruments held in stock which have yet to be dispatched for use in oil and gas operations:

- If the proceeds obtained from liquidation thereof are less than the specified book value thereof, accountants must post the following entries to relevant accounts as follows:

Debit A/C 111, 112, 131, etc. Amount of proceeds generated from liquidation

Debit A/C 249 – Unrecoverable costs (Negative difference between the amount of proceeds generated from liquidation and the specified book value of these raw materials, tools or instruments subject to liquidation)

Credit A/C 152, 153 (Book value of raw materials, tools or instruments subject to liquidation)

Credit A/C 3331 – Output VAT payable (where applicable).

- If the proceeds obtained from liquidation thereof are greater than the specified book value thereof, accountants must post the following entries to relevant accounts as follows:

Debit A/C 111, 112, 131, etc. Amount of proceeds generated from liquidation

Credit A/C 152, 153 (Book value of raw materials, tools or instruments subject to liquidation)

Credit A/C 249 – Unrecoverable costs (Positive difference between the amount of proceeds generated from liquidation and the specified book value of these raw materials, tools or instruments subject to liquidation)

Credit A/C 3331 – Output VAT payable (where applicable).

- Where Contractor parties decide to use the portion of difference between the amount of proceeds from liquidation and the book value of raw materials, tools or instruments to adjust paid-in capital accounts, accountants shall record the following entries:

+ Where the amount of proceeds from liquidation is greater than the book value of raw materials, tools or instruments, accountants shall carry over the portion of difference currently recorded in unrecoverable costs in order to record an increase in paid-in capital of parties as follows:

Debit A/C 249 – Unrecoverable costs

Credit A/C 3411, 4111.

+ Where the amount of proceeds from liquidation is less than the book value of raw materials, tools or instruments, accountants shall carry over the portion of difference currently recorded in unrecoverable costs in order to record an increase in paid-in capital of parties as follows:

Debit A/C 3411, 4111.

Credit A/C 249 – Unrecoverable costs.

Article 15. Accounting for other income accounts

1. Accounting principles

a) Other income accounts which are not prescribed by the oil and gas agreement may be composed of the followings:

- Deposit interest;

- Gifts or donations from individuals or entities;

- Other income.

b) Other income accounts shall be recognized as other income or revenue earned from financial transactions. c) After being offset against associated costs and used for discharging obligations to the State Budget (where applicable), these income accounts shall be recorded as an increase in paid-in capital of Contractor parties, except as the oil and gas agreement prescribes that they are recorded as a reduction in oil and gas operating costs.

2. Accounting method

a) Accounting for bank deposit interest

- When bank deposit interest arises, accountants shall post the following entries to relevant accounts:

Debit A/C 112, 138.

Credit A/C 515 - Revenue earned from financial transactions.

- The amount of CIT payable (where applicable) shall be recorded as follows:

Debit A/C 515 - Revenue earned from financial transactions

Credit A/C 3334 – CIT tax payable.

- b) The amount of paid-in capital of parties increasing in proportion to the amount of bank deposit interest shall be recognized by posting the following entries:

Debit A/C 515 - Revenue earned from financial transactions

Credit A/C 4111 – Paid-in capital of the operator Parent company

Credit A/C 3411 – Paid-in capital of other Contractor parties.

- Where the oil and gas agreement prescribes that bank deposit interest is recorded as a reduction in oil and gas operating costs, the following entries shall be posted to relevant accounts:

Debit A/C 515 - Revenue earned from financial transactions

Credit A/C 246, 247, 248.

b) Accounting for other income accounts

- Other income which is not prescribed by the oil and gas agreement including income earned from gifts or donations in cash or in kind received from individuals or entities, or income of other types, shall be recorded in the following accounts:

Debit A/C 112, 131.

Credit A/C 711 – Other income.

- Costs associated with income accounts shall be recorded in the following accounts:

Debit A/C 811 – Other expenses

Credit A/C 112, 331.

- Carryover of other expenses and income for the purpose of determination of net income shall be recorded as follows:

Debit A/C 711 – Other income

Credit A/C 811 – Other expenses

- The amount of CIT payable shall be recorded as follows:

Debit A/C 711 – Other income

Credit A/C 3334 – CIT tax payable.

- The amount of paid-in capital of parties increasing in proportion to the amount of other income shall be recognized by posting the following entries:

Debit A/C 711 – Other income

Credit A/C 4111 – Paid-in capital of the operator Parent company

Credit A/C 3411 – Paid-in capital of other Contractor parties.

- Where the oil and gas agreement prescribes that other income accounts are recorded as a reduction in oil and gas operating costs, the following entries shall be posted to relevant accounts:

Debit A/C 711 – Other income

Credit A/C 246, 247, 248.

Article 16. Accounting for the exchange difference

1. Exchange rate

a) Where the oil and gas agreement prescribes in detail application of the exchange rate, the O&G Operator shall comply with terms and conditions of that agreement. Unless the oil and gas agreement prescribes in detail application of the exchange rate, the O&G Operator shall apply the actual exchange rate quoted on the transaction date.

b) The actual exchange rate in certain cases shall be specifically defined as follows:

- The actual exchange rate on trading of foreign currency (Foreign exchange spot, forward, future and swap contracts) refers to the exchange rate agreed in contracts for trading of foreign currency between enterprises and commercial banks.

- The actual exchange rate on acceptance of paid-in capital refers to the buying exchange rate at which investors purchase foreign currency from banks to be remitted for capital contribution purposes as of the date of capital contribution.

- Where the oil and gas agreement does not prescribe the payment exchange rate, the contracting entity must record transactions in the accounting book according to the following principles:

+ The actual exchange rate on recognition of accounts receivable refers to the buying exchange rate quoted by the commercial bank which the contracting entity designates to receive payment made by customers as of the date on which the payment transaction occurs;

+ The actual exchange rate on recognition of liabilities refers to the selling exchange rate quoted by the commercial bank where the contracting entity intends to perform its transaction as of the date on which such transaction occurs;

+ With respect to spot foreign currency payment for asset purchases or of expenses (not through liability accounts), the actual exchange rate refers to the buying exchange rate quoted by the commercial bank where the contracting entity makes payment.

- The actual exchange rate on revaluation of monetary entries carrying a value in a foreign currency that occurs as of the date of formulation of a financial statement refers to the exchange rate quoted by the commercial bank where the contracting entity regularly carries out transactions (at this contracting entity’s discretion) according to the following principles:

+ The actual exchange rate on revaluation of monetary entries carrying a value in a foreign currency which is classified as assets refers to the buying exchange rate quoted by commercial banks as of the date of preparation of financial statements. As for foreign-currency bank deposit accounts, the actual exchange rate on revaluation refers to the buying exchange rate quoted by the bank where the contracting entity opens its foreign currency account;

+ The actual exchange rate on revaluation of monetary entries carrying a value in a foreign currency which is classified as liabilities refers to the selling exchange rate quoted by commercial banks as of the date of preparation of financial statements.

- The actual exchange rate on changes of currency units used in accounting activities, and on conversion of assets and liabilities as components of financial statements from a foreign currency to VND, refers to the average buying and selling exchange rate quoted by the commercial bank that the contracting entity designates at its discretion as of the date of change of currency unit used in accounting reports.

c) The book exchange rate (e.g. the nominal or weighted average exchange rate) in certain cases shall be specifically defined as follows:

- The nominal exchange rate refers to the rate on recovery of receivables, collateral pledges or deposits, or on payment of liabilities in foreign currencies, which is determined by the exchange rate quoted at the date on which transactions of each stated item arise;

- The weighted-average book exchange rate refers to the rate used at the Credit side of monetary accounts paid in foreign currencies which is determined on the basis of dividing total value reflected at the Debit side of monetary accounts by the amount of foreign currency actually available as of the payment date.

2. Monetary entries carrying a value in foreign currencies

These accounts or items refer to assets recovered in foreign currencies or liabilities paid in foreign currencies. Monetary entries carrying a value in foreign currencies may include:

a) Cash, cash equivalents, (either definite or indefinite term) bank deposits in foreign currencies;

b) Receivables, liabilities carrying value in a specified foreign currency, except:

- Advance payments to sellers and expenses paid in advance in a specified foreign currency. Where there is firm evidence that a seller is unable to supply goods or services, and that the contracting entity will have to get back advances in a foreign currency, these accounts shall be defined as monetary entries carrying value in foreign currencies.

- Payments made in advance by buyers and revenues received in advance in foreign currencies. Where there is firm evidence that the contracting entity is unable to supply goods or services, and that the contracting entity will have to return advance payments in a foreign currency to buyers, these accounts shall be defined as monetary entries carrying value in foreign currencies.

c) Down payments, collateral pledges or deposits in foreign currency cash or cash equivalents that can be got back; down payments, collateral pledges or deposits in foreign currency cash or cash equivalents that have to be paid back.

3. Application of exchange rates of all types to recording of transactions in the accounting book, preparation and presentation of financial statements.

a) When transactions in a foreign currency arise, the actual exchange rate quoted as of the date on which these transactions arise shall be used for conversion into the currency unit used for recording transactions in the accounting book with respect to accounts reflecting assets, liabilities, owner's capital, expenses and other income. Certain other cases shall be prescribed in detail as follows:

- Upon receipt of advance payments made by buyers, income equivalent to the amount of such advance payments shall be subject to the rate quoted at the date of receipt;

- Where expenses paid in advance are allocated to related costs incurred during the accounting period, such expenses shall be recognized at the rate determined at the date on which advance payments are made;

- Where purchased assets and costs are associated with advance payment transaction with sellers, asset value equivalent to the amount of such advance payment shall be calculated at the rate quoted on the date of making advance payment to sellers.

b) When transactions in foreign currencies arise, the nominal book exchange rate shall be used for conversion into the currency unit to record transactions in the accounting book:

- Credit A/C receivables (except receipt of advance payments from buyers) or Credit A/C reflecting collateral deposits, pledges and prepaid expenses;

- Debit A/C payables (except for transactions in which sellers are paid in advance).

c) When payments in foreign currencies are made, the weighted-average book exchange rate shall be used for conversion into the currency unit used when recording transactions in the accounting book at the Credit side for the monetary A/Cs.

4. Accounting principles

a) Exchange differences that arise from payments made during the accounting period and revaluation of monetary entries carrying value in foreign currencies at end of the accounting record shall be recorded in financial revenues (in case of profit generated) or financial expenses (in case of losses incurred), carried forward to make an increase or reduction in oil and gas operating expenses (if allocated to recoverable costs) or recognized as exchange differences (in the A/C 413) of the balance sheet (unless allocated to recoverable costs).

b) Subject to the decision granted by the Contractor or competent authority, accountants shall carry over exchange differences (in the A/C 413) to make any increase or decrease in the portion of paid-in capital of parties or the portion of unrecoverable costs.

5. Method of accounting for exchange differences

a) Accounting for exchange differences that arise from payments made during the accounting period.

- When losses or profits arise, the entries are recorded as follows:

+ Recording profits earned from the exchange rate:

Debit relevant A/Cs

Credit A/C 515 - Revenue earned from financial transactions.

+ Recording losses incurred from the exchange rate:

Debit A/C 635 – Financial expenses

Credit relevant A/Cs.

- Where profits or losses are charged to recoverable costs, accountants shall immediately carry over exchange rate profits or losses to adjust oil and gas operating costs as of the date on which these profits or losses arise:

+ Carrying over exchange rate profits and recording a reduction in oil and gas operating costs in the following entries:

Debit A/C 515 - Revenue earned from financial transactions

Debit A/C 246, 247, 248, 642.

+ Carrying over exchange rate losses and recording an increase in oil and gas operating costs in the following entries:

Debit A/C 246, 247, 248, 642

Debit A/C 635 – Financial expenses.

- Where exchange rate profits or losses are not charged to recoverable costs, accountants shall carry over these closing profits or losses to the A/C 413 - Exchange differences, the following entries shall be recorded:

+ Carrying over exchange rate profits by posting the following entries:

Debit A/C 515 - Revenue earned from financial transactions

Credit 413 - Exchange differences.

+ Carrying over exchange rate losses by posting the following entries:

Debit 413 - Exchange differences.

Credit A/C 635 – Financial expenses.

- If otherwise prescribed by the oil and gas agreement, terms and conditions of that oil and gas agreement shall prevail.

b) Accounting for revaluation of closing monetary entries carrying value in foreign currencies

- At end of the accounting period, when revaluating monetary entries carrying value in foreign currencies:

+ If profits arise, the following entries shall be recorded:

Debit relevant A/Cs

Credit A/C 515 - Revenue earned from financial transactions.

+ If losses are incurred, the following entries shall be recorded:

Debit A/C 635 – Financial expenses

Credit relevant A/Cs.

- Under specific circumstances when they are deemed as recoverable on unrecoverable costs, accountants shall carry out accounting treatment of exchange differences as prescribed in point a clause 5 of this Article. If otherwise prescribed by the oil and gas agreement, terms and conditions of that oil and gas agreement shall prevail.

c) When Contractor parties or competent authorities make a decision on accounting treatment of exchange differences in which these differences are not charged to recoverable costs, after consulting that decision, accountants must record:

- If exchange differences are allocated to paid-in capital of parties:

+ Carrying over exchange rate profits by posting the following entries:

Debit 413 - Exchange differences

Credit A/C 3411, 4111.

+ Carrying over exchange rate losses by posting the following entries:

Debit A/C 3411, 4111.

Credit 413 - Exchange differences.

- If exchange differences are directly allocated to unrecoverable costs:

+ Carrying over exchange rate profits by posting the following entries:

Debit 413 - Exchange differences

Credit A/C 249 – Unrecoverable costs.

+ Carrying over exchange rate losses by posting the following entries:

Debit A/C 249 – Unrecoverable costs.

Credit 413 - Exchange differences.

Article 17. Accounting for costs of clearing production wells

Accounting principles

a) The O&G Operator shall act on behalf of parties to the oil and gas agreement to assume responsibility for clearing production wells and restoring the original site in accordance with laws upon termination of the oil and gas agreement.

b) On a periodic basis, as from the date of commencement of commercial oil and gas production, the O&G Operator must provide margins to the host country (represented by PVN) as the reserve fund to secure financial obligations concerning clearing of immovable facilities and equipment used in oil and gas production activities within the territory of Vietnam.

c) When depositing money in the PVN’s escrow account, the O&G Operator shall also be entitled to set aside the reserve fund as security for financial obligations and record it in costs incurred at the extraction stage.

d) Setting aside, usage and settlement of the reserve fund must be monitored in detail where appropriate for specific oil and gas agreements.

dd) Where the amount of reserve fund used for securing financial obligations is greater than the realized amount of costs paid for such clearing activity, the residual amount shall be treated as follows:

- If all costs have been fully recovered, the residual amount of the reserve fund after discharge of obligations to the State Budget shall be re-distributed to parties according to profit oil distribution principles;

- Where all costs have not been fully recovered, the residual portion of the reserve fund shall be offset against oil and gas extraction costs.

2. Method of recording certain major transactions in the accounting book

a) Upon setting aside the reserve fund to secure financial obligations concerning clearing of production wells, the following entries shall be recorded:

Debit A/C 248 – Oil and gas extraction costs

Credit A/C 335 - Costs payable.

b) When the O&G Operator provides margins as security for financial obligations put under the authority of PVN, the following entries shall be recorded:

Debit A/C 244 – Collateral deposits or pledges

Credit A/C 112 – Bank deposits.

c) When actual costs of clearing of production wells are incurred, the following entries shall be recorded:

Debit A/C 335 – Prepaid expenses

Credit A/C 331 – Payables to sellers.

d) When getting back margins from PVN to pay any costs of clearing of production wells arising, the following entries shall be recorded:

Debit A/C 112 – Bank deposits

Credit A/C 244 – Collateral deposits or pledges.

dd) Payment of costs already incurred from clearing of production wells shall be recorded as follows:

Debit A/C 331- Payables to sellers

Credit A/C 112 – Bank deposits.

e) Upon completion of clearing of oil and gas production wells, if the reserve fund for securing financial obligations is not used up, the residual amount shall be handled as follows:

- f) Where oil and gas operating costs have not been fully recovered, the O&G Operator must record a decrease in extraction costs equivalent to the residual amount of reserve fund which has not been used, the following entries must be recorded:

Debit A/C 335 - Costs payable

Credit A/C 248 – Oil and gas extraction costs.

- Where oil and gas operating costs have been fully recovered, the O&G Operator shall record the residual amount of reserve fund as payables to parties in the following specific cases:

+ Where the O&G Operator is obliged to act on behalf of Contractor parties to remit the portion of profit paid to the host country to the State Budget:

When getting back margins from PVN, the following entries shall be posted:

Debit A/C 112 – Bank deposits (the amount of margin returned from PVN from which the amount payable has not been deducted)

Credit A/C 244 – Collateral deposits or pledges.

When determining the amount of payment to the State Budget, the following entries shall be recorded:

Debit A/C 335 - Costs payable

Credit A/C 333 - Taxes and accounts payable to the State Budget.

When payment is made directly to the State Budget, the following entries shall be posted:

Debit A/C 333 - Taxes and accounts payable to the State Budget (3339)

Credit A/C 112 – Bank deposits.

+ Where PVN acts on behalf of the O&G Operator to pay in the amount of profit to which the host country is entitled, upon getting back margins from PVN, the following entries shall be posted:

Debit A/C 112 – Bank deposits (the amount of margin returned from PVN from which the amount payable to the State Budget has been deducted)

Debit A/C 335 - Costs payable

Credit A/C 244 – Collateral deposits or pledges.

- The residual amount of reserve fund used as security for financial obligations which is recognized as other payables to Contractor parties, and from which the amount of profit paid to the host country has been deducted, shall be posted to the following accounts:

Debit A/C 335 - Costs payable

Credit A/C 338 – Other payables (Details thereof provided for specific Contractor parties).

- Upon payment of the amount of money derived from the reserve fund used to secure financial obligations to Contractor parties or the operator Parent company, the following entries shall be posted:

Debit A/C 338 – Other payables (Details thereof provided for specific Contractor parties).

Credit A/C 112 – Bank deposits.

Article 18. Accounting for administrative overhead costs

1. Accounting principles

a) Administrative overhead costs are costs incurred from operations of the office of the O&G Operator where appropriate for specific oil and gas agreements. Administrative overhead costs are costs indirectly associated with oil and gas prospecting, exploration, resource volume estimate, development and extraction activities. On a periodic basis, administrative overhead costs shall be allocated to costs of oil and gas prospecting, exploration, resource volume estimate, development and extraction activities where appropriate for terms and conditions of specific oil and gas agreements and characteristics of the O&G Operator. Administrative overhead costs may be paid for the followings:

- Wages and salaries paid to staff working in the office of the O&G Operator;

- Leased assets of the office of the O&G Operator;

- Outsourced services of the office of the O&G Operator;

- Other administrative activities of the office of the O&G Operator.

b) The O&G Operator must consolidate and keep track of details of administrative overhead costs in accordance with specific oil and gas agreements in order to finalize accounts with Contractor parties to the oil and gas agreement. Where the O&G Operator executes multiple oil and gas agreements but fails to keep separate accounts of administrative overhead costs for each oil and gas agreement, such administrative overhead costs shall be allocated according to the formula as appropriate under terms and conditions of the oil and gas agreement and for Contractor parties to the oil and gas agreement.

2. Accounting method

- When calculating wages, salaries or benefits paid to employees working for the O&G Operator, the following entries shall be posted:

Debit Account 642 – Administrative overhead costs

Credit A/C 334 – Payables to employees.

- When social, health and unemployment insurance contributions are charged to administrative overhead costs, the following entries shall be posted:

Debit Account 642 – Administrative overhead costs

Credit A/C 338 – Other payables.

- When purchasing raw materials, tools or instruments immediately used for operations of the office of the O&G Operator without being held in inventory, the following entries shall be posted:

Debit Account 642 – Administrative overhead costs

Debit A/C 133 – Deductible VAT

Credit A/C 111, 112, 331.

- When dispatching raw materials, tools or instruments out of inventory for use in operations of the O&G Operator, the following entries shall be posted:

Debit Account 642 – Administrative overhead costs

Credit A/C 152, 153.

- When purchasing raw materials, tools or instruments for use in operations of the O&G Operator by advances paid to employees, the following entries shall be posted:

Debit Account 642 – Administrative overhead costs

Debit A/C 133 – Deductible VAT

Credit A/C 141 - Advances.

Credit A/C 111, 112.

- Other charges for outsourced services supplied to the O&G Operator, including electricity, water, telephone bills, office rentals, fees for lease of vehicles or other costs shall be recorded in the following entries:

Debit Account 642 – Administrative overhead costs

Debit A/C 133 – Deductible VAT

Credit A/C 111, 112, 331.

- On a periodic basis, the O&G Operator shall allocate administrative overhead costs to oil and gas prospecting, exploration, development and extraction costs by posting the following entries:

Debit A/C 246, 247, 248

Credit Account 642 – Administrative overhead costs.

Article 19. Regulations on preparation and presentation of financial statements

1. General regulations on preparation and presentation of financial statements

a) The O&G Operator shall prepare and present financial statements as prescribed by the oil and gas agreement.

b) Upon preparing and presenting Balance sheets, the O&G Operator shall adopt the template referred to in the Appendix 2 hereto and shall be entitled to add more components defined in the corporate accounting policy on demand without being subject to the Ministry of Finance’s consent. Contents, and method of codifying components of, the Balance sheet, must comply with regulations set forth in the applicable corporate accounting policy and additional instructions given in clause 2 of this Article. The O&G Operator shall be entitled to designate numerical codes to components where appropriate for nature and status of operations.

c) Where the oil and gas agreement does not prescribe in detail the reporting of income or expense accounts during the accounting period, the O&G Operator shall use income statements referred to in the applicable corporate accounting policy to report income or expense accounts during the accounting period. Method of codifying components of an income or expense report must conform to regulations laid down in the applicable corporate accounting policy.

d) The O&G Operator shall use the notes to financial statement referred to in the applicable corporate accounting policy to prepare and present the notes to its financial statement. For the purposes of these notes, the O&G Operator must explain in detail whether the amount of prospecting, exploration, development and extraction costs is approved by PVN’s auditors as recoverable costs or unrecoverable costs. Contents and method of codifying components of the notes to a financial statement must conform to regulations laid down in the applicable corporate accounting policy.

2. Guidance on contents and method of codifying components of the Balance sheet

Supplement and provide guidance on contents, and method of codifying certain particular components of, the Balance sheet in comparison with the applicable corporate accounting policy. With respect to those components which are not prescribed by this Circular, the O&G Operator shall comply with regulations set forth in the applicable corporate accounting policy.

a) Prospecting, exploration and resource volume estimate costs

This component reflects costs incurred during the prospecting, exploration and resource volume estimate process which are accrued till end of the reporting period. Data inputs in the component “Prospecting, exploration and resource volume estimate costs” are based on the debit balance of Account 246 “Prospecting, exploration and resource volume estimate costs” recorded in the Ledger or Journal-Ledger.

b) Oil and gas development costs

This component reflects costs incurred during the oil and gas development process which are accrued till end of the reporting period. Data inputs in the component “Oil and gas development costs” are based on the debit balance of Account 247 “Oil and gas development costs” recorded in the Ledger or Journal-Ledger.

c) Extraction costs

This component reflects costs incurred during the oil and gas extraction process which are accrued till end of the reporting period. Data inputs in the component “Oil and gas extraction costs” are based on the debit balance of Account 248 “Oil and gas extraction costs” recorded in the Ledger or Journal-Ledger.

d) Unrecoverable costs

This component reflects the amount of costs which are not recovered as prescribed by the oil and gas agreement, and costs which are suspended or eliminated during an audit according to the audit report prepared by PVN till end of the reporting period. Data inputs in the component “Unrecoverable costs” are based on the debit balance of Account 249 “Unrecoverable costs” recorded in the Ledger or Journal-Ledger.

dd) Recoverable costs

This component reflects the amount of costs incurred at prospecting, exploration and resource volume estimate stages; oil and gas development and extraction stages, which has already been recovered through the cost oil produced till end of the reporting period. Data inputs in this component are recorded in negative numbers within the bracket (…). Data inputs in the component “Recoverable costs” are based on the credit balance of Account 251 “Recoverable costs” recorded in the Ledger or Journal-Ledger.

e) Paid-in capital of other Contractor parties

This component reflects the amount of paid-in capital of other Contractor parties other than the operator Parent company arising as of the reporting date. Data inputs in the component “Paid-in capital of other Contractor parties” are credit balances of the Account 3411 “Paid-in capital of other Contractor parties” recorded in the detailed accounting book of the Account 3411.

g) Paid-in capital recovered by other Contractor parties

This component reflects the amount of paid-in capital of other Contractor parties which has been offset by the cost oil produced as of the reporting date. Data inputs in this component are recorded in negative numbers within the bracket (…). Data inputs in the component “Paid-in capital recovered by Contractor parties” are detailed debit balances of the Account 3412 “Paid-in capital recovered by Contractor parties” recorded in the detailed accounting book of the Account 3412.

h) Paid-in capital of the operator Parent company

This component reflects the amount of paid-in capital of the operator Contractor company arising as of the reporting date. Data inputs in the component “Paid-in capital of the operator Contractor company” are detailed credit balances of the Account 4111 “Paid-in capital of the operator Parent company” recorded in the detailed accounting book of the Account 4111.

k) Paid-in capital recovered by the operator Parent company

This component reflects the amount of paid-in capital of the operator Parent company which has been offset by the cost oil produced as of the reporting date. Data inputs in this component are recorded in negative numbers within the bracket (…). Data inputs in the component “Paid-in capital recovered by the operator Contractor company” are detailed debit balances of the Account 4112 “Paid-in capital recovered by the operator Parent company” recorded in the detailed accounting book of the Account 4112.

3. Addressee of financial statements

Financial statements of the O&G Operator must be submitted to the provincial Department of Tax, authorities granting investment licenses, provincial Statistical Offices and other entities in accordance with laws and regulations.

Chapter III

IMPLEMENTATION

Article 20. Implementary provisions

1. This Circular shall enter into force from January 1, 2015. The O&G Operator of which/whom the applicable accounting policy was approved by the Ministry of Finance before the date of entry into force of this Circular must comply with regulations laid down in this Circular. With respect to oil and gas agreements repealed before December 31, 2016, the O&G Operator shall continue to apply the accounting policy approved by the Ministry of Finance.

2. The O&G Operator, and individual or organizational entities concerned, shall be responsible for implementing this Circular. In the course of implementation, if there is any difficulty that arises, the Ministry of Finance must be informed to take timely actions./.

APPENDIX 01

CHART OF ACCOUNTS FOR OIL AND GAS INDUSTRY OPERATORS
(Issued together with the Circular No. 107 /2014/TT – BTC of the Ministry of Finance dated August 8, 2014)

APPENDIX 02

BALANCE SHEET

Compiled as at the date:……

(Issued together with the Circular No. 107 /2014/TT – BTC of the Ministry of Finance dated August 8, 2014)

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