Oil and Gas Joint Interest Billing and Revenue Distribution - Resource Logic Client/Server Development Services

Resource Logic Client/Server Development Services

Project - Oil and Gas Joint Interest Billing and Revenue Distribution

In the early 1980's Resource Logic partnered with another company to develop a suite of applications for a business concept we were trying out: the placement of networked minicomputers in the basements of large buildings, with data entry stations available to clients in the upper floors. This being Texas, one application that looked promising was Oil and Gas Joint Interest Billing and Revenue Distribution.

There are three classes of ownership in a production oil or gas well: Working Interest, Royalty, and Overriding Royalty. Working Interest owners pay the expenses of operating the well and are typically paid the greatest share of the well's revenues. Royalty owners may be people that shared the cost of the drilling but are not paying operating expenses. Overriding Royalty owners might be the person owning the land the well is located on.

An operating company will manage several leases, each of which in turn has a variable number of owners (usually limited to no more than 35 for 'Subchapter S Corporation' tax reasons). Some owners will have both Royalty and Working Interest percentages of particular leases, and many owners will own interests in several leases. The objective of the operating company (and therefore the software application) is to keep expenses and revenues properly assigned and distributed.

This application was paired with a General Ledger and Accounts Payable system, one for recording the expenses and revenues and the other for printing checks. Operating Expense and Well Revenue transactions were first recorded in the General Ledger. Transactions belonging to particular accounts were then extracted and distributed into the Oil and Gas application.

The Joint Interest Billing component of the system splits the costs of operating the well with the Working Interest owners. The Well Operating Expense transactions are first distributed to the Working Interest owners, then the data is summarized by Owner, so that each owner gets one statement, regardless of how many interests they have in various leases. Some owners operate on a 'net' basis, which means that well revenue is applied to expenses and the difference, if it is positive, is sent to the owner. Other owners prefer to write a check to cover well operating expenses, and receive a separate check for their share of all revenues collected.

The Revenue Distribution side is similar, although more people are paid than are billed. All revenue is distributed to the owners, and then the revenues per owner are summarized into Ownership Payables. A tricky element to this at this point is the Severance Tax, which is an exaction made by the state the lease is operating in. For Texas, this tax is normally 8.5%. However, some owners, such as school districts or municipalities, are not taxed.

This system was developed and used from 1982 to 1986. The application was written in Datapoint Databus and run on Datapoint 6600 computers using the RMS operating system. We had two clients running two leases and one lease respectively. Both clients abandoned this system in the 'oil bust' of the mid- to late-1980's.