When you think of ownership changes in upstream oil and gas, a lot comes to mind and that’s because ownership changes is a broad topic. It spans both land and accounting, there are a myriad of types and challenges associated, and addressing them takes time, effort, and manpower, the latter of which may be scarce especially right now.

As OPEC was increasing supply and driving down oil prices, the coronavirus was simultaneously setting in and reducing demand. The two have had earth-shattering impacts on upstream oil and gas, including the challenges of working from home and social distancing in the field, and more starkly, cutting drilling and other projects, furloughing employees, trying to maintain cash on hand, and frankly, surviving.

There are many ways to manage the financial close process; it’s certainly not a one-size-fits-all approach. What is uniform in most cases, however, is that a sophisticated reporting tool can significantly improve the process to verify data and make it easier.

Disparate data is disgruntled data. It’s only valuable to one person at a time, at one specific point in time. Siloed data stored in spreadsheets on someone’s computer is risky because you don't know how old it is, and it may conflict with your up-to-date production data set. Upon the data being shared, it's nearly impossible to track down whose data is accurate or current. Variances or uncertainties in data can lead to possible rework and make revenue accountants’ jobs difficult.

By definition, automation is “the technique of making an apparatus, a process, or a system operate automatically” (Merriam-Webster). In other words, eliminating the most tedious and time-consuming work for an individual, group, or department.

The purpose of this blog is to understand the depth of functionality needed in a revenue accounting system; distribution, accruals, escheat, and regulatory reporting that not all revenue accounting systems might have.

People may feel that revenue distribution functionality is the same across upstream oil and gas accounting solutions. It’s true, almost all have the basic abilities – revenue distribution, check and detail printing, and division order maintenance – but there’s far more to the story. Few systems do all the following:

What is netting? Derived from the terms and conditions in the operating agreement, revenue netting is the deduction of joint interest billing (JIB) expenses that are owed to the operator from the revenue distribution check that is sent to the working interest owners.

When operating a well, the operator indirectly has a lien against the working interest owners for costs of operations, which is billable based on these terms. The operating agreement addresses lien rights and the ability to offset revenues against expenses.

Authorizations for expenditure (AFEs) are the means for communicating and tracking final approval of expenditures for proposed projects in the oil and gas industry. They also help customers monitor project spending by providing insight into real-time expenses and comparing the spend to the approved budget.

Often managing numerous multi-stage projects at any given time, AFEs provide customers with a way to track spending by specific accounts or categories and help manage the process and approvals required if more expenditures are needed.