FRS 102 is now live. What it actually means for UK and Irish upstream oil and gas.

For accounting periods beginning on or after 1 January 2026, FRS 102 Section 20 brings an on-balance-sheet lease model in the shape of IFRS 16. For anyone running finance in exploration and production, the contracts have taken months to untangle. Here is the good news, and the traps.

The good news: the core mineral interests are outside the section. Leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources are excluded from Section 20 (paragraph 20.1(a)). Exploration licences, concession agreements and production rights stay off the right-of-use model.

Two further reliefs are worth claiming where they fit: short-term leases of twelve months or less, and leases of low-value assets, may both be expensed rather than capitalised (paragraph 20.5).

The catch: the kit that extracts the hydrocarbons is inside. A bareboat-chartered jack-up rig, a drillship and many FPSO arrangements are leases of identified assets, and they land on the balance sheet as right-of-use assets and lease liabilities.

Two places where finance and commercial teams need to talk:

• Embedded leases. Turnkey and service contracts can contain a lease. The test is the right to control an identified asset (paragraphs 20.15 to 20.26), so a crewed time charter may be a service while a bareboat charter is a lease. Read each contract; do not assume.
• Joint operating agreements. An operator that signs as principal may recognise the full right-of-use asset and liability, even where the cost is recharged to non-operating partners. The answer depends on who holds the right to control the asset, and it needs working through contract by contract.

The mineral rights are sheltered. The rigs, vessels and embedded arrangements are where the balance sheet effect actually lands.