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.
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.
