IFRS 6 deals with the recognition and measurement of Exploration and Evaluation Assets (E&E assets). This applies to activities relating to the search for mineral resources, including minerals, oil, natural gas and similar non-regenerative resources. This standard makes sure that the E&E assets are presented distinctly in the Balance sheet.
In the oil and gas Industry the value chain flows through the following main activities:
1. Rights – leasing contract, for example.
2. Exploration and production
The scope of IFRS 6 is restricted to the activities of exploration and evaluation [ E&E]. This does not include pre-exploration, production, refining and distribution in its scope.
The general accounting method recognizes three methods of accounting treatment for E&E namely,  Fully expensed method [ 2] successful efforts method  Full costing method. The US GAAP recognizes method  and  only.
The resources found by the entity and the resultant cash flows are material in indicating the future financial strength. As we have no visibility over future cash flows at the exploration stage, all the above methods suffer a general criticism in the context of matching [Revenue Vs cost] and impairment. IFRS addresses this by means of exemptions,namely:
 Permitting capitalization of actual expenditure – does not require the probability of future cash flows as a qualifying criteria.
 Exempting the requirements for impairment testing [as in IAS 36].IFRS 6 also permits the reversal of impairment.
IFRS 6 allows the flexibility of continuing to use the local GAAP / internal accounting policies. This also exempts from complying with IAS 8 [accounting policies, changes in accounting estimates….].
The E&E assets should be classified as tangible assets [ IAS 16] and intangible assets [ IAS 38]. In case of discontinuation of exploration and deconstruction of the relevant assets, appropriate provision should be made as per IAS 37.
From the SAP perspective the following treatment will apply.
The first and foremost thing is to define the accounting policies.IFRS 6 mandates the definition of accounting policy as a precondition for invoking the flexibilities given under this standard.
The US GAAP allows for implementation of both successful efforts and full costing Principles. IFRS 6 on the other hand insist to capitalize this expenditure, subject to the accounting policies. Thus a firm hitherto adopting full costing method will have to capitalize the expenditure, meaning it has to configure asset class, asset, depreciation etc. Asset Accounting gets impacted substantially.
From the CO perspective it may need to revisit the overhead absorption [assessment, distribution, settlement, cost sheet etc], depreciation, product costing ,the allocation of purchase price in business combinations [accrual accounting may get impacted].As capitalization of the expenditure impacts profitability a careful re look at segments is warranted; in turn this may result in configuring new segments / do away with the existing ones.PCA config too gets impacted.
IFRS 6 mandates disclosures about amount entailed in E&E. The accounting policy adopted too should be disclosed. Report painter comes very handy here. We will be able to configure reports based on segments, CGUs, the individual exploration project wise……
Asset accounting and Project System configurations will be substantially impacted,so they may need a critical re look.
IFRS 6, amongst other things, enables the following, viz ,
 allows us to treat, valuate per local GAAP/ per Internal accounting policies..
 permits the reversal of impairment.
 Permits the internal accounting policies to prevail in case of Farm ins and outs, asset swap, unitization at E&E phase.
  to  above are driven by internal policies.
As can be seen the treatment in SAP is driven by the accounting policies.Therefore the blue printing should be done only after defining relevant policies, the boundary conditions.
It should be remembered that IFRS 6 is only a temporary standard, in sense, this will get predated by a new one; as such there could be changes to the configurations etc.Therefore considerable discussions should happen amongst the Technical experts,Accountants,IFRS specialists so that the Industry best practices are in place.This will minimize the changes as we go forward.
Just to mention most of the oil companies have adopted Successful effort method.This converges with IFRS 6 by default,so these companies can get away with minimal changes to the way the treat and valuate the assets.In SAP too the changes will be practically nil.On the other hand the firms that have adopted full costing method will have to go through the rigor of changes.
IFRS, in general,is about changes; in extreme case this can potentially change the complexion of the financial statement. Needless to mention,a proper change management and documentation is vital.