This article is 21 years old. Images might not display.
Beach Petroleum Limited has accompanied the warning with a call for amendments to Corporations Law to have exploration costs written off against capital, not revenue.
Under international accounting rules to be adopted in Australia by 2006, exploration costs will have to be totally written off in the same year instead of amortised over the life of an oil or gas discovery as the field is commercialised.
"The effect is that explorers emerging as producers will have to bear these costs up front and possibly prior to any pumping of oil or extraction of gas," Beach's Managing Director, Reg Nelson, said today.
"These companies in their first production years, may only be looking at annual profit levels of $10 million or less but these can be immediately wiped out and a loss recorded by same year write-offs of exploration costs - and these can be very high.
"The new accounting standards do not affect the top and bottom end of the petroleum spectrum. The largest players have financial depth.
"Exploration-only companies have no revenue, simply accumulate exploration costs as losses and can even enjoy share price growth based on perceptions about the prospectivity of their acreage.
"Unless write-off amendments to Corporations Law are forthcoming, the squeeze will come in the mid-range, home to companies driving Australia's recent exploration charge," Nelson said.
"For these companies, the changes will mean that profits, and therefore dividend capability, will be either wiped out or heavily diluted.
"The overall result will be a slow down in activity and a totally wrong perception about the performance and outlook for these companies," he said.
"The cash flows of these mid-tier performers would be unaffected by the accounting standard changes.
"However, in order to record a profit and protect any chance of a dividend payment, these companies will be forced to focus on risk-adverse, known-area acreage rather than visionary exploration budgets and strategies."
Nelson made his comments in Melbourne yesterday afternoon during an address to a "Juniors Explorers Forum" at the Australian Petroleum Production and Exploration Association's annual conference.
