SAUDI ARABIAN OIL COMPANY (Saudi Aramco) GENERAL INSTRUCTION NO.

GENERAL INSTRUCTION MANUAL 202.300

ISSUE DATE REPLACES
ISSUING ORG. ACCOUNTING POLICY, METHODS & SYSTEMS DEPARTMENT 03-23-03 05-16-01
APPROVAL PAGE NO.
SUBJECT: ACCOUNTING FOR CASUALTY COSTS FAT 1 OF 10

CONTENT:
This General Instruction outlines the Corporate financial policies and procedures for the handling of costs associated
with a casualty. GIs 6.001 and 6.003 cover notification requirements and investigation guidelines for casualty incidents
respectively. The text includes:

1. Glossary
2. Definitions
3. Assignment of Job Order (WBS) Numbers/Job Order Phase Numbers/Budget Item Numbers
4. Assignment of Internal Order (I.O.) Item Number
5. Capital Expenditure Budget Item
6. Insurance Claim
7. Accounting Treatment
8. Write-off of Damaged Assets

1. GLOSSARY:

1.1 ABBREVIATIONS & ACRONYMS

AFE - Authorization for Expenditure

AM - Asset Management
BI - Budget Item
CPFAD - Capital Programs Forecast & Analysis Division/PFAD
CSSU - Construction Support Services Unit/PSD
ER - Expenditure Request
FAAU - Fixed Assets Accounting Unit/FADAD
FAD - Financial Accounting Dept.
FADAD - Fixed Assets & Drilling Accounting Division/FAWIP
FAWIP - Fixed Assets & Work-In-Progress Accounting Dept.
FPD - Facilities Planning Dept.
IO - Internal Order
JO - Job Order
O/T - Over Time
PAD - Projects Accounting Division/FAWIP
PFAD - Programs, Forecast & Analysis Dept.
PS - Project System
PSD - Projects Support Division/FAWIP
P&CP - Projects & Capital Planning
RMD - Risk Management Division/Treasurer’s Staff Dept.
SAP - Systems, Applications & Products
VP&CU - Voucher Processing and Control Unit/FAD
WBS - Work Breakdown Structure

1.2 REFERENCES

AI 203 - Incomplete Construction

AI 206 - Accounting for Disposition of Capital Assets
GI 006.001 - Notification Requirements For Incidents (Including Fire)

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SAUDI ARABIAN OIL COMPANY (Saudi Aramco) GENERAL INSTRUCTION NO.

GENERAL INSTRUCTION MANUAL 202.300

ISSUE DATE REPLACES
ISSUING ORG. ACCOUNTING POLICY, METHODS & SYSTEMS DEPARTMENT 03-23-03 05-16-01
APPROVAL PAGE NO.
SUBJECT: ACCOUNTING FOR CASUALTY COSTS FAT 2 OF 10

GI 006.003 - Guide For Committees Investigating Major Incidents And Engineering Reviews
Of Other Incidents
GI 020.500 - Expenditure Request Forms
GI 216.606 - Entry Codes ( Cost Elements )
GI 207.050 - Form SA 630 Capital Assets Change Authorization
GI 216.604.440 - Operating Expense Accounts & Organization Codes
GI 216.965 - Cost Distribution Rates
SAAM 300.310 - Saudi Aramco Accounting Manual/Capital Assets/Capital Versus Expense
SAEP 328 - Saudi Aramco Engineering Procedure 328

2. DEFINITIONS:

2.1 MAJOR CASUALTY (EXTRAORDINARY)

A casualty event costing US Dollars one million and over.

2.2 ORDINARY CASUALTY

A casualty event costing less than one million US Dollars is to be considered an ordinary casualty and
will be charged to the RMD Ordinary Casualty gain/loss accounts.

3. ASSIGNMENT OF JOB ORDER (WBS) NUMBERS/JOB ORDER PHASE NUMBERS/BUDGET ITEM

NUMBERS:

3.1 Each casualty circumstance is unique, however, a major casualty is characterized by repair or
replacement cost forecast above one million dollars, requires the immediate assignment of a special JO
(WBS), and a regular capital budget item for facility replacement.

3.2 A major casualty may include expenditures associated with fire fighting, pollution control, temporary
repairs, and repairs or replacement of facilities damaged.

3.3 The control of costs is the responsibility of the designated construction agency responsible for restoring
the facility to operation. The Accountants in CSSU/PSD/FAWIP, assisted (as necessary) by designated
construction agency personnel, will handle the analysis of the costs.

3.4 Costs must be accumulated in a systematic manner to enable management to identify and control costs,
to process insurance claims against the insurers, and to segregate capital expenditures in accordance with
established accounting guidelines.

3.5 For purposes of cost identification, cost control, identification of new assets, replacing damaged assets,
and insurance claims handling, all casualty costs (both Major and Ordinary) are accumulated under a JO
(WBS) number within a special BI number Project Type Prefix 24 in SAP/P&CP/PS, (refer to AI 203 –
Incomplete Construction, Section 2).

3.6 Standard JO (WBS) phase numbers within the special BI will be assigned to segregate and accumulate
costs for financial and control purposes. The CSSU/PSD/FAWIP Accountant determines the JO (WBS)

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SAUDI ARABIAN OIL COMPANY (Saudi Aramco) GENERAL INSTRUCTION NO.

GENERAL INSTRUCTION MANUAL 202.300

ISSUE DATE REPLACES
ISSUING ORG. ACCOUNTING POLICY, METHODS & SYSTEMS DEPARTMENT 03-23-03 05-16-01
APPROVAL PAGE NO.
SUBJECT: ACCOUNTING FOR CASUALTY COSTS FAT 3 OF 10

phase numbers in conjunction with the parties involved, such as Project Management personnel, RMD
personnel, and the insurance claims adjuster (Project Management is responsible for creating the JO
(WBS) and its phase numbers while CSSU/PSD/FAWIP for activating them in SAP/P&CP/PS).

3.7 Emergency type costs directly associated with the casualty will be accumulated in the applicable JO
(WBS) phase number. These costs usually occur during the initial clean-up activities of the casualty.

3.8 The JO (WBS) phase number 100 will be routinely provided at the request of the organizations likely to
be immediately involved in providing materials or assistance to the containment effort. This is done to
minimize potential procedural or administrative delays to any damage containment effort.

3.9 Several special BI numbers under Project Type prefix 24 will be maintained in an open status by
CPFAD.

3.10 The CPFAD will assist proponents in all procedural matters associated with initial setting up of the
special BI.

3.11 The special BI numbers will be assigned to specific events as necessary by PSD/FAWIP. From the open
status special BI numbers noted above, Project Management and FAWIP will maintain one special JO
with a standard phase number 100 in an open status in the SAP/P&CP/PS to accumulate immediate
casualty related costs.

3.12 A separate regular BI under Project Type Prefix 10 will be created to rebuild or restore a facility to its
condition prior to suffering a casualty. CPFAD and Project Management will determine JOs and phase
requirements for the BI associated with a rebuild in conjunction with the RMD (see section 5 below).
The Project Management will create the JO (WBS) numbers and phases and PAD/FAWIP will activate
them in SAP/P&CP/PS.

4. ASSIGNMENT OF INTERNAL ORDER (I.O.) ITEM NUMBER:

4.1 RMD will issue an Internal Order under order group 67 to:

4.1.1 Accumulate expenses from the applicable special BI

4.1.2 Record the net book value of the damaged assets to be written-off

4.1.3 Record salvage value credits, if any, and

4.1.4 Record credits from insurance proceeds

5. CAPITAL EXPENDITURE BUDGET ITEM:

5.1 Replacement costs will be accounted for under the rules and principles prescribed in the Saudi Aramco
Accounting Manual, Sections 300-310.

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SAUDI ARABIAN OIL COMPANY (Saudi Aramco) GENERAL INSTRUCTION NO.

GENERAL INSTRUCTION MANUAL 202.300

ISSUE DATE REPLACES
ISSUING ORG. ACCOUNTING POLICY, METHODS & SYSTEMS DEPARTMENT 03-23-03 05-16-01
APPROVAL PAGE NO.
SUBJECT: ACCOUNTING FOR CASUALTY COSTS FAT 4 OF 10

5.2 Costs to repair or replace facilities, provided they are replaced or repaired “In Kind” are generally
covered under the Company’s insurance program subject to a deductible and a maximum limit. An
approved ER is required for all capital replacement.

5.3 The concerned Proponent, with assistance from FPD and the appropriate construction agency, will be
required to submit an ER for the restoration or rebuilding of the damaged facilities.

5.4 CPFAD will assist Proponents in all procedural matters associated with the development of the ER for
restoration or rebuilding of the damaged facility.

5.5 The ER will be prepared in accordance with GI 20.500.

5.6 The ER should detail the total repair, clean up, and other expenses in the special BI, and the total
estimated expenditures required to restore the facility to the condition existing prior to the incident, as
well as any required safety enhancements.

5.7 Labor costs (including overtime) of the Company are not transferred between accounts on a net direct
expenditure basis, but as a reallocated cost. All other charges for material, equipment, repair cost,
contractor invoiced cost, etc. should be booked directly to the BI and not to the organization’s net direct
expenditures consistent with established procedures.

5.8 An AFE should be submitted for all costs, capital and expense, of the construction (see SAEP 328)
including those that may not be recoverable from the Company’s insurers.

6. INSURANCE CLAIM:

6.1 Complete supporting documentation (reports, invoices, etc.) and justification of all costs related to
disaster control, clean-up, dismantling, repair, and replacement are required by the insurers. The
PSD/FAWIP Accountant will coordinate with others to obtain this documentation as soon as possible
after the event.

6.2 Monthly, the PSD/FAWIP Accountant will sort supporting documentation by phase number under the
special JO (WBS) and file them in separate monthly files. These files will be retained by the Accountant
and made available to other Saudi Aramco organizations as necessary.

6.3 Costs associated with facilities enhancement rather than “In Kind” replacement must be specifically
identified for possible negotiation in the settlement of the insurance claim (see 5.2 above).

6.4 In preparing the claim, the concept of insurance recoverability/non-recoverability must be kept separate
and distinct from capital versus expense classifications.

6.5 Items classified as expense are part of the casualty gain or loss determination regardless of insurance
recoverability.

6.6 RMD will submit claims to the insurer’s claims adjusters and/or to the Company’s Insurance Broker
and/or the Protection and Indemnity Club/Insurer.

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SAUDI ARABIAN OIL COMPANY (Saudi Aramco) GENERAL INSTRUCTION NO.

GENERAL INSTRUCTION MANUAL 202.300

ISSUE DATE REPLACES
ISSUING ORG. ACCOUNTING POLICY, METHODS & SYSTEMS DEPARTMENT 03-23-03 05-16-01
APPROVAL PAGE NO.
SUBJECT: ACCOUNTING FOR CASUALTY COSTS FAT 5 OF 10

7. ACCOUNTING TREATMENT:

7.1 In accordance with generally accepted accounting principles, probable or estimable gain or loss
associated with a casualty event must be determined and recorded in the period when the event occurred.

7.2 Costs such as labor, materials, equipment usage, etc., used directly to contain the casualty will be
charged to Phase 100 of the special JO using the appropriate cost element (refer to GI 216.604.440 and
GI 216.606). Costs are eventually settled from the special JO (WBS) to the Internal Order, using the
original cost element for Ordinary Casualties or cost element 7409901 for Major Casualties
(Extraordinary). The cost accumulated in the Internal Order will settle ultimately to one of the following
Casualty Loss cost centers depending on the type of casualty event:

Cost Center Description

440910 Extraordinary Casualty Gain or Loss

440911 Ordinary Casualty Gain or Loss
440912 Cargo & Personal Effects Losses
440915 Liability Claims – Employee - Extraordinary Loss
440916 Liability Claims – Employee - Ordinary Loss
440917 Liability Claims –3rd Party- Extraordinary Loss
440918 Liability Claims –3rd Party - Ordinary Loss
440919 Oil Spill Clean-up Costs – Extraordinary Loss
440920 Oil Spill Clean-up Costs - Ordinary Loss
440921 Builders Risk Loss – Extraordinary
440922 Builders Risk Loss – Ordinary

7.3 Costs (including applicable overheads) of any excess or surplus materials remaining at completion of the
project are transferred from the special JO standard phase 100, using original cost elements, to phase
077. Any credits received, full or partial, from the sale or other disposal of these materials, are credited
to phase 077. At project completion, the net cost remaining in phase 077 is settled to cost center 427450
'Gain/Loss - Surplus/Excess Materials - Construction Projects'.

7.4 Amounts recognized as due from insurance will be recorded in the appropriate receivables account with
the offsetting credit to the Internal Order. When money is collected, debit the appropriate cash account
and credit the applicable receivable.

7.5 Refer to Attachment A of this Instruction for a listing of typical phase assignments during the initial
emergency clean-up and temporary repair phases. See Attachment B for an example of the accounting
entries for a Major Casualty loss.

8. WRITE-OFF OF DAMAGED ASSETS:

8.1 FAAU/FADAD/FAWIP will furnish the proponent with a list of assets of specific plants or locations to
assist in preparing the required Form SA 630, "Capital Assets Change Authorization". Refer to GI
207.050 for the write-off of the damaged assets.

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SAUDI ARABIAN OIL COMPANY (Saudi Aramco) GENERAL INSTRUCTION NO.

GENERAL INSTRUCTION MANUAL 202.300

ISSUE DATE REPLACES
ISSUING ORG. ACCOUNTING POLICY, METHODS & SYSTEMS DEPARTMENT 03-23-03 05-16-01
APPROVAL PAGE NO.
SUBJECT: ACCOUNTING FOR CASUALTY COSTS FAT 6 OF 10

8.2 The net book value for the totally damaged assets will be charged initially to cost center 440910 or
440911 through SAP/AM (refer to AI 206 Section 5). From the cost center, the amount will be
transferred by FAIU/FADAD to the Internal Order.

Approved: _(Original signed by FAT)_

E.D. O’Brien, Manager
Accounting Policy, Methods
& Systems Department

CNM/EFA
W/C # P0300
Previous TPB W/C M664

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SAUDI ARABIAN OIL COMPANY (Saudi Aramco) GENERAL INSTRUCTION NO.

GENERAL INSTRUCTION MANUAL 202.300

ISSUE DATE REPLACES
ISSUING ORG. ACCOUNTING POLICY, METHODS & SYSTEMS DEPARTMENT 03-23-03 05-16-01
APPROVAL PAGE NO.
SUBJECT: ACCOUNTING FOR CASUALTY COSTS FAT 7 OF 10

ATTACHMENT A

AN EXAMPLE OF JOB ORDER (WBS) AND PHASE NUMBER OPENING

JOB ORDER PHASE TYPICAL PHASES OPENED INITIALLY FOR

(WBS)NUMBER NUMBER THE SPECIAL BUDGET ITEM

24-024XX 100 Direct disaster containment activities

101-299 Specific phases. To be determined by FA&WIPAD Job Accountant and
Construction/Project Engineer
5XX Expense items
510 Cleanup and dismantling costs
520 Temporary repairs and installation to restore operations
530 Repair costs
540 Salvage value credits
550 Pollution control and cleanup
560 Costs of inspection to ascertain damage
6XX Other major expense items
610 Mobilization and demobilization costs
620 Expediting expenses (i.e. airfreight or premiums for expeditious delivery by
manufacturers)
621 Contractor overtime (O/T) hours and costs - insurance adjusters may want to
know what O/T was paid and why.
630 Bonus costs
640 Engineering studies
650 Outside consulting services
660 Underwriter survey expenses
670 Community damages and claims
999 Accounting clearances only

NOTE:
This is an example of JO (WBS) phases required during the emergency clean-up and temporary repair phase of the
project. The restoration or rebuild effort phases will be established by the construction agency in conjunction with
FA&WIPAD and the Treasurer's Organization.

Approved: (Original signed by FAT) ___

E.D. O’Brien, Manager
Accounting Policy, Methods &
Systems Department
CNM/EFA
W/C # P0300
Previous TPB W/C M664

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SAUDI ARABIAN OIL COMPANY (Saudi Aramco) GENERAL INSTRUCTION NO.

GENERAL INSTRUCTION MANUAL 202.300

ISSUE DATE REPLACES
ISSUING ORG. ACCOUNTING POLICY, METHODS & SYSTEMS DEPARTMENT 03-23-03 05-16-01
APPROVAL PAGE NO.
SUBJECT: ACCOUNTING FOR CASUALTY COSTS FAT 8 OF 10

ATTACHMENT B
AN EXAMPLE OF ACCOUNTING FOR A PLANT FIRE

The following assumptions apply in this example: (US$ Millions)

Book value of entire plant before fire 150

Insurance deductible 20
Book value of assets destroyed 25
Replacement cost (Capital US$ 55 plus Expense US$ 5) 60
Insurance Proceeds (US$ 57 recoverable base minus US$ 20 deductible) 37

• Special Budget Item 24-024XX used at time of fire

• Regular BI 10 -XXXXX approved later for complete rebuild
• An internal order is opened by Treasurer's for casualty gain/loss determination

ACCOUNTS

24-024XX-XXX 10-XXXXX-XXX Internal Order 67-

XXXXX-XX

A) 5 5 D) B) 55 55 E) C) 25 37 F)

D) 5

G) 7

CASUALITY G/L
CASH NET ASSETS (440910)
Beginning
F) 37 5 A) balance 150 7 G) ***

55 B) E) 55 25 C)
Ending
23 *** balance 180

+30 Increase 7 Gain

A - ENTRY

DR 24-024XX-XXX Expenses incurred in cleanup and temporary US$ 5

operations
CR 1000100XXX Cash US$ 5

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SAUDI ARABIAN OIL COMPANY (Saudi Aramco) GENERAL INSTRUCTION NO.

GENERAL INSTRUCTION MANUAL 202.300

ISSUE DATE REPLACES
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SUBJECT: ACCOUNTING FOR CASUALTY COSTS FAT 9 OF 10

B - ENTRY

DR 10-XXXX-XXX Expended for capital portion of rebuild US$ 55

CR 1000100XXX Cash US$ 55

C - ENTRY

DR Internal Order Write-off of book value of assets destroyed US$ 25

67-XXXXX- (manual entry via cost center 440910/440991)
XXX
CR Net Assets Net Assets US$ 25

D - ENTRY

DR Internal Order Settle Expenses to Internal Order US$ 5

67-XXXXX-
XXX
CR 24-024XX Expenses US$ 5

E - ENTRY

DR Net Assets Close Rebuild to Net Assets US$ 55

CR 10-XXXXX Rebuild US$ 55

F - ENTRY

DR 1000100XXX Cash: Book Insurance Proceeds. $57 recoverable US$ 37

base - 20 deductible = $37 insurance proceeds (this
would ordinarily be through a receivable account)
CR Internal Order Off set against loss US$ 37
67-XXXXX-
XXX

G - ENTRY

DR Internal Order Close to Casualty G/L US$ 7

67-XXXXX-
XXX
CR 00-00440-9xx Casualty G/L US$ 7
This settlement of internal orders occurs continually.
It is shown here for illustrative purposes.

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SAUDI ARABIAN OIL COMPANY (Saudi Aramco) GENERAL INSTRUCTION NO.

GENERAL INSTRUCTION MANUAL 202.300

ISSUE DATE REPLACES
ISSUING ORG. ACCOUNTING POLICY, METHODS & SYSTEMS DEPARTMENT 03-23-03 05-16-01
APPROVAL PAGE NO.
SUBJECT: ACCOUNTING FOR CASUALTY COSTS FAT 10 OF 10

*** Summary:

Net Assets have increased US$ 30, funded by cash of $23 and a casualty gain of $7 for this example.

Note: Portions of the cost of replacement are assumed to be unrecoverable from insurance proceeds.

Approved: _ (Original signed by FAT)__

E.D. O’Brien, Manager
Accounting Policy, Methods &
Systems Department

CNM/EFA
W/C # P0300
Previous TPB W/C #M664

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