Critical appraisal of the accounting method in the petroleum/petrochemical industry

Project Abstract

The petroleum and petrochemical industry plays a vital role in the global economy, and accounting practices within this sector have significant implications for financial reporting, investment decisions, and regulatory compliance. This research project aims to conduct a critical appraisal of the accounting methods used in the petroleum and petrochemical industry. The study will focus on understanding the unique challenges and complexities faced by companies operating in this sector, such as commodity price volatility, complex production processes, and environmental regulations. The research will involve a comprehensive review of existing literature on accounting practices in the petroleum and petrochemical industry, including relevant accounting standards and guidelines. By analyzing the current accounting methods used by companies in this sector, the study seeks to identify potential areas for improvement and best practices that can enhance financial reporting transparency and accuracy. Furthermore, the research will explore the impact of technological advancements, such as digitalization and automation, on accounting practices in the petroleum and petrochemical industry. The increasing use of advanced technologies in operations and data management presents both opportunities and challenges for accounting professionals, requiring a reevaluation of traditional accounting methods to adapt to the changing business environment. In addition, the study will examine the role of sustainability and environmental accounting in the petroleum and petrochemical industry. With growing concerns about climate change and environmental sustainability, companies in this sector are under increasing pressure to report on their environmental performance and carbon emissions. The research will investigate how accounting methods can be leveraged to incorporate sustainability metrics and promote greater accountability for environmental impact. Overall, this research project aims to provide valuable insights into the accounting practices of the petroleum and petrochemical industry, highlighting areas for improvement and innovation. By critically appraising existing accounting methods and exploring new trends and technologies, the study seeks to contribute to the ongoing dialogue on financial reporting in this crucial sector.

Project Overview

<p> </p><p>1.0 INTRODUCTION</p><p>This is the introductory chapter of the chapter, it briefly explains the brief history, statement of the problem, objective, assumption, scope and limitation of the study, hypothesis and research questions about the subject matter are also discussed under this chapter including other relevant information. The need for a petrochemical industry in Nigeria was conceived for quite a long time. It was however not until 1978 that the idea of using some refinery by-products as feedstock to produce some petrochemical products was conceptualized. Due to the capital intensive nature of the petrochemical industry, the Nigeria National Petroleum Corporation (NNPC) adopted a phased approach in the establishment of upstream petrochemical plants. The business mission of the Eleme Petrochemicals Company is to profitably manufacture a range of petrochemical products and to market these products locally and abroad. Eleme Petrochemical Company Limited (EPCL) plants commercial operations with a total number of 1,376 staff, made up of 138 expatriates technical backup services (TBS) and 1,246 Nigerian staff. The Technical Back-up Services were provided by Foster wheeler management operations Ltd. UK (31). Technimont SPA, Italy (66) and Comerint SPA, Italy (33). Some Nigeria staff were trained in similar facilities abroad while bulk of the Nigeria operation and maintenance staff were trained at the Petroleum Training Institute (PTI), Warri and at the Kaduna, Warri and Port Harcourt Refineries. However, in 1999 EPCL started a gradual phase out of the TBD personnel as most Nigerian staff gained adequate experience on the operation and maintenance of the plant. As 138 expatriates TBS Personnel the cost of about $2million per month was abominable as it had negative impact on the cost of operations and cash flows for the company. Today, the cost stands at about $0.64 million for 43 TBS personnel. Historically, the Eleme Petrochemical Complex project was started in the project engineering division of the NNPC and Mr. S. A. Kufeji as the general manager, championed by Dr. E. I. Onyia as manager petrochemicals. In 1982m, the petrochemical division of the NNPC was created with Mr. O.O. Lolomari as the general manager, while Dr. E. I. Onyia continued his lead push for the petrochemicals programme. Later that year, NNPC signed the consultancy agreement with foster wheeler International Corporation of Reading, UK following a major reorganization of NNPC in October 1985. Dr. T.M. John was appointed the coordinator of the petrochemical sector. During another restructuring of the NNPC in 1988, Dr. James M. John became the first managing director of EPCL in April 1990, when Dr. T. M. John moved to NNPC Corporation headquarters as the group manager directors of NNPC. It was during chief Oyibo tenure that the foundation stone of the EPCL was laid in December 1991, chief Oyibo move to Lagos to become the first group Executive Director, upstream and gas and later the group managing director of NNPC in 1993. Dr. Edet I. Oahimin – Akhimien took over from Chief Oyibo as the third managing director of EPCL in 1992, and piloted the construction of the complex until August 7, 1995, when he handed over to Dr. Andrew C. Uzoigwe as the managing director who was also the first project coordinator of the project in 1999. Dr. Andrew C. Uzoigwe moved to the corporate headquarters as a group executive director. Exploration and production and handed over to Dr. Dannnar the present managing director of the Eleme Petrochemicals Company limited. The complex is of great strategic importance to the country. This research work is focused on a critical appraisal of the accounting methods in the petroleum petrochemical industry, with the Eleme Petrochemical Company Limited (EPCL) as a case study. It is directed at analyzing the various methods of accounting system used in the operation of the industry if such methods exist and if it conform with the required and recommended standards by the management and the regulatory bodies. In Nigeria, the operation of the industry – the petroleum petrochemicals industry is being controlled by the NNPC as such the RPCL is a subsidiary to the corporation. The activities of the industry is divided into the acquisition of mineral interest in properties, exploration development and production of crude and gas. Downstream activities involve transporting referring and marketing of oil, gas and derivation F. O. Agboroh (1999:221). It involves the cracking of the NNPC/AGIP/PHILIPS Joint venture NGL extracted plant. Located at Obiafu / Obrikron, down into broken down to produce other grades of the various components from further action. The complex is involved in the production of mostly plastic raw material, which may serve as raw material down to produce, their end – use products. The plastic raw material induces the following: Low density polythene (LDPE), High Density Polythene (HDPE) and Polypropylene (PP). some of their end use application involve; film packaging, processed food packaging, bread wrap, textile products. Injection Moulding; squeezable bottle for cosmetics, pharmaceuticals and toiletry products, agricultural construction, green housing for multiple season cropping etc. Blow Moulding: Jerry cans, industrial cans, cosmetics and oil containers etc. other include, cups, ropes, yean, prayer mat, film wrapper etc. EPCL commission manual (1999:29). The project or research work is aimed at researching into how these things are effectively costed from each production process to the other, the method of costing used. How effective it is, how their machine and equipment are valued depreciated. Also, to research in the valuation of these materials (stock). PETROCHEMICAL OPERATIONS OF PETROCHEMICAL INDUSTRY</p><p>Petrochemical operations can be sub divided into feedstock acquisition, feedstock storage processing, packaging finished products storage and sales. Cracking under high temperature or treated with chemical and catalyzed. In the case of Olefin base plant, natural hydrocarbon gas are passed through an olefin plant where ethylene and propylene are produced. Polymerized into poly ethylene and polypropylene into polyethylene and polypropylene refines used for he manufacture of plastics, F. O. Agboroh (1999:351)</p><p><strong>1.1 STATEMENT OF THE PROBLEMS</strong><br>The basic statement of the problem of this research work is to research into and find out or examine whether or not accounting methods exist in the petroleum industries and how well it has been practiced if it exist. To also find out if such conform with the required standard. The statement of the problem will also lead the research into finding out if at all the common book keeping and accounting process are observed under the industry in question.</p><p>The next thing is to identify the actual accounting methods on the particular sector, make a formal appraisal and analysis and finally, make recommendation for improvement where necessary.</p><p><strong>1.2. THE NEED FOR THE STUDY</strong><br>The need for this research work is to expose and acquaint us with the operations of the petroleum sectors and the organizations under study. The understanding of the frame work and implementation of the accounting methods in the sector – a case study of Eleme Petrochemical Company Limited. There is also the need for us to know the level of accounting of the sector in the areas of recommendations of Nigerian Accounting Standard Board under the statement of Accounting Standard (SAS).</p><p>The need for identification of the actual accounting common book keeping and accounting principles, conventions and concepts used the sector in the case of Eleme Petrochemical Company Limited.</p><p><strong>1.3 THE OBJECTIVES OF THE STUDY</strong><br>The objective of this study is to research into financial operations and accounting methods used in its operations. It is aimed at enhancing the understanding of the effect of the use of these methods on the company operations</p><p>The research work is directed at knowing whether or not the area under study have actually toed the line, doctrine, principles, and practices recommended by the Nigerian Accounting Standard Board (NASB) under the Statement of Accounting Standard (SAS). The researcher work is also aimed at discovering the application of the various methods of accounting in the day – to – day running of the organization and its contributions to the success of the operations of the organization as well.</p><p><strong>1.4 RESEARCH QUESTIONS AND HYPOTHESIS</strong><br>i. Are the existing accounting methods in use in the operations of small company? ii. Are the methods in use in line with the company policies on accounting standards and operations? iii. Do the company’s policy on accounting methods and such method in use are in line with the recommended standard and practice by the Nigerian Accounting Standard Board (NASB) under the Statement of Accounting Standard (SAS) and / or any other regulatory bodies? HYPOTHESIS 1 Ho: There are no accounting methods in use in the financial operations of the organization as required and recommended by the Nigerian Accounting Standard Board (NASB) under the Statement of Accounting Standards (SAS) on Petroleum and petrochemicals operations in Nigeria. Hi: There are accounting methods in use in the financial operations of the operations as required recommended by the Nigerian Accounting Standard Board (NASB) Under the statement of Accounting Standard (SAS) on petroleum and petrochemicals operations in Nigeria HYPOTHESIS 2 Ho: The method use in not is in line with the company’s policies on accounting standard and operation.</p><p>Hi: The method use is in line with the company’s policies on standard and operation.</p><p>1.5 SCOPE OF THE STUDY The scope of this work is somehow broaden because it has to do with the operations of this petroleum/petrochemicals sectors which is the largest and predominant sector in the Nigerian economy. The added advantage is the reference to a case study which will unite such scope. The work will involve an appraisal of the literature review of the accounting methods used in recognizing measuring and valuing an item of expenses, gains, loss or any asset and liability.</p><p>The review is also made on the petroleum accounting operations and their various applications; it is also extended to methods of accounting on sales (export and domestic sales) stock assets valuation and depreciation, materials, revenue and expenses measure methods etc. The researcher also made a review of the roles functions of these methods on management and the economic resources available to the organization leading its effect.</p><p><strong>1.6 SIGNIFICANCE OF THE STUDY</strong><br>On the completion of this study, it is believed that the findings and the recommendations thereafter will go along way to expose and acquaint us with the operations of the petroleum sector and the organization under the study. The study will help us to understand the structural framework and implementation and the petroleum industry in particular – Eleme Petrochemicals Company Limited.(EPCL) The study will expose us to the differences between the operations and financial structure of the petroleum/petrochemicals industry – EPCL in particular and other manufacturing and sectoring companies in the Nigerian Economy. The study with its recommendations will aid the management function of planning, organizing, coordinating and controlling if properly relied upon.</p><p>Generally, its overall assumption is that it will go a long way to assist those who will take time to read and rely upon the recommendations that will be made at the end of this study both individual students intellectuals and the organization understudy in the performance of their functions and duties, decision making both at present and in the future.</p><p>1.7 THE LIMITATIONS OF THE STUDY Nothing can be completed without one obstacle, hindrance or the other and as such in the course of this work, the researcher encountered some limiting factors which included: i. Time Constraints ii. Financial Constraints iii. Data Collection Constraints</p><p>iv. The effect of nature on human health sickness such that the researcher had to undergo a period of breakdown during the research work which caused the greater part of the constraints.</p><p>1.8 DEFINITION OF TERMS CATALYSTS: Are chemical substances that are used to speed up the cracking of hydrocarbons. CRACKING: Is a process whereby large hydrocarbon molecules are broken down into one through heating process and use catalysts. FEEDSTOCK: Is a raw material for petroleum refining petrochemicals process units and liquefied natural gas plant. HYDROCARBON: Is a compound of carbon and hydrogen or a carbon of such components which may exist in solid, liquid or gaseous form. NNPC: Nigerian National Petroleum Corporation. NATIONAL GAS: Are liquids which can be extracted from natural gas field liquid (NGL) facilities. They generally include prepare and heavier fractions such as butane and in some cases ethane. OLEFINS: Are classes of hydrocarbons which include ethylene and propylene. PETROCHEMICALS: Is a chemical derived from petroleum or natural gas processing. POLYMERIZATION: Is the process of chemically joining molecules of hydrocarbon into long chains of complex molecules.</p><p>REFINING: Is the process of distilling crude oil into light or heavy fractions or cracking heavy products into lighter ones thereby converting them into usable products feedstock</p> <br><p></p>