Oil and gas assets are complicated. Not just when it comes to managing them, but also understanding all the associated verbiage and acronyms that come with them. Here we provide a breakdown of ten of the most commonly used terms in oil and gas accounting.
- 1. Royalty Interest: A share of production or revenue paid to the mineral owner or government.
- 2. Working Interest: The percentage of ownership in a well or lease.
- 3. Net Revenue Interest (NRI): The percentage of revenue received from the sale of oil and gas after royalty payments and other expenses.
- 4. Lease Operating Expense (LOE): The expenses incurred in operating a well, such as labor, equipment, maintenance, and repairs.
- 5. Severance Tax: A tax imposed on the extraction of non-renewable natural resources.
- 6. Depletion: The reduction in the value of an asset over time due to extraction or use.
- 7. Production Sharing Agreement (PSA): An agreement between a company and a government that specifies the terms of sharing profits from oil and gas production.
- 8. Joint Operating Agreement (JOA): An agreement between two or more parties that outlines the terms and responsibilities for the exploration, development, and operation of an oil and gas property.
- 9. Asset Retirement Obligation (ARO): The estimated cost of dismantling, removing, and restoring an oil and gas asset at the end of its useful life.
- 10. Reserves: The estimated amount of oil and gas that can be recovered from a property.
Understanding the nuances of oil and gas accounting is crucial for asset owners to truly grasp how their investments are being managed and optimized. Without a basic knowledge of key accounting terms and practices, owners may find themselves in a vulnerable position, potentially unaware of the financial strategies and decisions being implemented on their assets’ behalf. This lack of understanding can lead to missed opportunities for maximizing returns or, worse, financial discrepancies. Partnering with Valor alleviates these concerns by putting your assets in the hands of seasoned professionals. Our experts handle all aspects of oil and gas accounting, allowing you to focus on other priorities without the need to become an expert in the complex financial landscape of the oil and gas industry. With Valor, you can trust that your assets are managed with expertise and strategic insight, ensuring their best performance and your peace of mind.
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The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
