Professional Documents
Culture Documents
The term DD & A stands for Depreciation, Depletion & Amortization. Let me throw some light on DD
& A in this blog.
Now we all probably agree that the meaning of all these three terms indicate similar pattern i.e. reduction
in the value however these terms are being used for different purposes.
Platforms
Field Facilities
ARO Assets
Gas Plants
Support facilities
1
Deferred Tax
Undeveloped Leasehold
Normal/Regular assets that are used i.e. Buildings, Vehicles, Plant, Machinery, Software,
Hardware, Furniture etc.
Pipelines
How the DD&A come into application for the related assets:
Generally upstream majors utilize the DD & A for their respective assets or things in a way according to
their prescribed guidelines, procedures and policies. Though it differs from organization to organization
however the general practice noticed in this regard are enumerated below:
Well Equipment – UOP (Unit of Production) depreciation method using the Proved Developed
Reserve portion
IDC – UOP depreciation method using the Proved Developed Reserve portion
Platforms – UOP depreciation method using the Proved Developed Reserve portion
Field Facilities – UOP depreciation method using the Proved Developed Reserve portion
ARO Assets – UOP depreciation method using the Proved Developed Reserve portion
Gas Plants – Straight Line Method based on committed field of production life or particular
number of years or UOP Method using the Proved Developed Reserve portion
Support Facilites – Straight Line Method based on committed field of production life or particular
number of years or UOP Method using the Proved Developed Reserve portion
2
Undeveloped Leasehold – Straight-line amortization method can be used over the lease term that
is applicable for particular cases
Capitalized Interest Leasehold & Non-Leasehold can be depreciated through the UOP method
utilizing the Proved Reserve or Proved Developed Reserve based on the respective scenario.
Buildings, Vehicle, Plant, Machinery, Software, Hardware, Furniture – Straight Line Method
utilizing the number of years for respective asset classes.
Pipeline – Straight Line Method using committed field/asset production life or UOP method
utilizing Proved Developed Reserves (it could be for pipelines which are dedicated to a single
producing asset/field).
Let’s look at how to achieve that in SAP:
Standard SAP Asset Depreciation configurations are useful (some of the important transaction codes are
highlighted below) to set up the system so that DD & A can be executed as required:
Define how depreciation areas post to General Ledger – Transaction Code: OADX
Define Unit-of-Production Depreciation – Transaction Code – AO25 (This is UOP Method and is
used to update the quantities for respective company codes for appropriate depreciation key)
The configuration menu path for the UOP is as follows: Period/Year wise number of units will be entered
here for respective Company Code & Depreciation Key combination.
3
4