The natural resources industry refers to both the oil and gas sector and the metals and mining sector.

Now, these companies are also sometimes referred to as extractives as their business model. Essentially depends on extracting natural resources from the ground and sometimes also processing or refining the extract so that they can be sold on as a commodity.

Now, major players in the oil and gas sector include Saudi, Aramco, Royal Dutch, shell, and PetroChina.

Whilst major players in the middles and mining sector include BHP Bulletin, Rio Tinto, and Glencore.

Now these companies are all global businesses.

They're operations are spread across multiple locations depending on where the extraction sites are located.

So what makes these companies special, and in particular, what makes them different to companies in other sectors? Well, let's take a look at the key differences.

The first difference is reserves and resources.

Now it's the extraction of reserves and resources that generate value for these companies.

Reserves and resources represent the volume of oil, gas, and minerals that are still in the ground and available for the company to extract as they haven't yet been extracted. They're not included in the balance sheet and are instead separately disclosed.

Companies don't have certainty as to how much oil and gas or minerals are present in a project site until the resources are actually extracted.

Therefore, reserves and resources are essentially estimated amounts.

So what do we mean by reserves and resources? Well reserves represent the amount of commodity in the ground which is commercially viable, and this usually means that the project site is at an advanced stage of development and the company is confident about the future extraction.

Whilst resources represent the amount of commodity in the ground, which are only potentially viable, this is because the resource hasn't yet been sufficiently appraised, or the site hasn't yet been sufficiently developed to be confident about the extraction.

The second difference is capitalization of project costs.

One of the main items on a natural resources company's balance sheet are capitalized, project costs, and these assets arise because the accounting allows these companies to capitalize exploration costs, evaluation costs, and development costs, which are incurred before extraction commences.

These capitalized costs are described as project assets, and they are a non-current assets.

The next difference is depletion of assets.

Once project assets are capitalized, they are then depleted over the project.

Life depletion is effectively the same thing as depreciation in that it reduces the book value of project assets each year.

But the main difference between depreciation and depletion is the method used for calculating it.

The annual depletion charge is calculated using the unit of production method.

The final difference is asset retirement obligations.

As extractive companies develop their minds and fields, they are required to recognize an obligation for any future costs of dismantling the assets and reinstating the land back to its original state.

These obligations are recognized as a liability, like a provision, and they're referred to as an asset retirement obligation.