Replacement cost profit

RECENT NEWS
Automotive World  Feb 7  Comment 
BP focused on growth: strategic portfolio additions, new projects coming onstream, costs and spending reduced ahead of schedule 4Q 2016 underlying replacement cost profit $400 million, full year 2016 $2.6 billion Full year underlying operating...
newratings.com  Feb 7  Comment 
LONDON (dpa-AFX) - Oil giant BP plc (BP.L, BP_UN.TO, BP) reported Tuesday that its fourth-quarter replacement cost profit was $72 million, compared to last year's loss of $2.23 billion. Replacement cost profit per share was 0.38 cents,...
The Economic Times  Feb 7  Comment 
Underlying replacement cost profit rose to $400 million from $196 million in the same period last year.
newratings.com  Feb 2  Comment 
THE HAGUE (dpa-AFX) - Royal Dutch Shell plc (RDS-B, RDSB.L, RDSA.L, RDS-A) reported that its fourth-quarter current cost of supplies or CCS earnings attributable to shareholders were $1.03 billion, down 44 percent from $1.84 billion in the...
newratings.com  Nov 1  Comment 
THE HAGUE (dpa-AFX) - Royal Dutch Shell plc (RDS-B, RDSB.L, RDSA.L, RDS-A) reported Tuesday that its third-quarter current cost of supplies or CCS earnings attributable to shareholders were $1.448 billion, compared to last year's loss of...
newratings.com  Jul 28  Comment 
THE HAGUE (dpa-AFX) - Anglo-Dutch oil giant Royal Dutch Shell (RDS-B, RDSB.L, RDSA.L, RDS-A) reported that its income attributable to shareholders fell to $1.175 billion from the prior year's $3.986 billion, with earnings per share declining...
OilVoice  Jul 26  Comment 
Draws a line under Deepwater Horizon liabilities at 61.6 billion. Strong operations and cash flow. Underlying replacement cost profit 720 million. Underlying operating cash flow 5.5 billion. Furt
newratings.com  May 4  Comment 
THE HAGUE (dpa-AFX) - Royal Dutch Shell (RDS-B, RDSB.L, RDSA.L, RDS-A) reported Wednesday that its first-quarter loss before tax was $642 million, compared to profit of $5.84 billion last year. Income attributable to shareholders plunged 89...
newratings.com  Feb 4  Comment 
THE HAGUE (dpa-AFX) - Royal Dutch Shell (RDS-B, RDSB.L, RDSA.L, RDS-A), which is in a deal to merge with peer BG Group Plc (BG.L, BRGYY.PK), reported Thursday a surge in fourth-quarter net profit, while its CCS earnings declined amid lower oil...
Reuters  Jan 20  Comment 
* Q4 2015 earnings on a current cost of supplies basis excluding identified items are expected to be in region of $1.6 - 1.9 billion




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Replacement cost profit, also known as Current Cost of Supplies (CCS) profit, or replacement cost income, is an accounting practice for reporting profits in the oil industry.

To calculate profits, companies must (among other things) subtract the cost of goods sold from the total revenue. However, the cost of goods sold can vary depending on how much the company paid for acquiring the goods.

In the oil industry, the cost of goods sold varies significantly due to fluctuations in the price of oil. The company's income is tied to the cost of goods sold, and as a result can also fluctuate significantly. For example: If Exxon bought some reserves in August 2008, when oil traded for $140 and sold those reserves in October 2008 when oil fell to $65 -- the company would have to report a loss.

Replacement cost profit addresses this problem by allowing oil companies base their cost of goods sold on the current price of oil, rather than the price at the time individual reserves were acquired. In other words, oil companies report profitability based on how much it would cost the company to "replace" the reserves it sells.

In practice, this is very similar to Last in first out accounting -- where costs are based on the last inventory acquisition price. However, replacement cost income would vary from LIFO-based income if there are significant changes in price or inventory levels.

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