Oil & Gas Accounting 101 – Terminology



To be able to work effectively in Oil & Gas Accounting, you need to understand some of the terminology for the oil & gas industry. Here are some of the terms you’ll encounter…


  • Authorization for Expenditure (AFE) – A document shown to investors in a well that will estimate drilling and completion costs. An AFE can then be used as drilling occurs to show actual costs versus estimated costs.
  • Barrel (BBL) – The basic unit for measuring oil. A barrel is equal to 42 U.S. gallons.
  • Credit – The right side of an entry to the G/L.
    Crude Oil – Liquid petroleum as it comes out of the ground. Crude oil varies radically in its properties, such as specific gravity and viscosity.
  • Debit – The left side of an entry to the G/L.
  • Delay Rental – Paid to the lessee (person or company who leased the land to be drilled upon) to retain concession if production is not taking place on the land.
  • General Ledger – The main record keeping location for all debits and credits for the company (entity).
  • Intangible Drilling Costs (IDC) – All costs incurred in drilling a well other than equipment or leasehold.
  • Intangible Completion Costs (ICC): Costs incurred with completing a well that are nonsalvageable if the well is dry or not including labor, materials, rig time, etc.
  • Joint Interest Billing Statement – The monthly statement sent from the operator to all the working interest holder’s within an oil and gas property detailing the expenses charged each month.
  • Lease – A legal document specifying the right to the minerals in a certain piece of property.
  • Leasehold Costs – The costs associated with obtaining and keeping a lease on a parcel of land on which a well is drilled.
  • Legal Suspense – Amounts held in suspense instead of being paid to an owner. Reasons for holding the suspense could be they moved with no forwarding address, a title dispute on the lease or they haven’t reached the minimum check amount set by the operator.
  • MCF – Thousand Cubic Feet. The standard unit for measuring the volume of natural gas.;
  • Natural Gas – Hydrocarbons, which at atmospheric conditions of temperatures and pressure, are in a gaseous phase.
  • Owner Deficit – Amounts held in suspense when a working interest owner, who’s expenses are being netted from their revenue, has expenses that exceed their revenue.
  • Payout – When the costs of drilling, producing and operating a well have been recouped from the sale of the products of the well.
  • Posting – Entering transactions that debit and credit accounts in the general ledger.
  • Production Tax – A tax levied by the residing state on production in that state. Normally withheld from royalty and working interest checks.
  • Revenue Statement: The monthly statement sent from either the purchaser or operator to al the interest holder’s within an oil and gas property detailing the expenses and revenue charged or received each month.
  • Royalty – The landowner’s share of production, before the expenses of production.
  • Severance Tax – A tax on the removal of minerals from the ground. The tax can be levied either as a tax on volume or a tax on value. In Louisiana oil is taxed at 10 cents per BBL and Natural gas is taxed at 5 cents per MCF. This tax is normally withheld form royalty and working interest checks.
  • Spudding In – The first boring of the hole in the drilling of an oil well.
  • Tangible Completion Costs – Lease and well equipment costs incurred from completing a well.
  • Tangible Drilling Costs – Actual costs of drilling equipment.
  • Well – A hole drilled in the earth for the purpose of finding or producing crude oil or natural gas or providing services related to the production of crude oil or natural gas.
  • Working Interest – An interest in an oil and gas well that shares the expense associated with drilling, completing or operating a well, as well as the share in the revenue made on the well.

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Source: SherWare Blog


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Rebecca Gardner - July 29, 2020

It was interesting when you explained that wells are also drilled to provide related services to the production of oil and natural gas. My brother is looking into drilling an oil well on the large piece of land he and his buddies recently purchased together. The info you shared here should be helpful as they move forward with getting the services and equipment they’ll need for the well!


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