Author Archives: sw-blogs
Author Archives: sw-blogs
Does catching up on current events that aren’t promoted on your Facebook newsfeed or highlighted on the the radio seem like a luxury? Blogs are where I usually turn to to decompress, but honestly, the oil and gas industry doesn’t have many interesting bloggers right now. Instead, here’s a list of the top five sites for the oil and gas industry. Each site has pros and cons, but will give you a variety of places to find current events, trends and analysis of what’s happening in the oil and gas industry.
I love this site as a source for oil and gas trends and news because it not only collects from 200+ e-mail newsletters and trade associations, but it’s content that is relative to what’s going on today in the United States.
Pros: This site gives you the headline and the first paragraph of the article – so you can either browse the main page to see what catches your eye, or click on the link for the full article. If I’m browsing blogs, it’s because I have a short amount of time and need a mind break – so I don’t want to spend my time following links.
Cons: I can’t think of any! I really like this site to quickly get an idea of what’s going on across the board.
The Oil & Gas Journal is a go-to place to find articles, white papers and analysis on the industry at every stage of the production process – from exploration and drilling to refining and processing and pipelines and transportation.
Pros: This site really hits all facets of the oil and gas industry so it’s not only relevant to the downstream but the upstream sector as well. It also probably has the most research and articles that highlight trends, facts and data analysis as opposed to straight news articles.
Cons: The majority of articles require subscription to access the highly-detailed articles, but you can also sign up for weekly e-newsletters too.
A website that collects energy related articles and aggregates them from a myriad of sources. These articles will tend to be broader world-view oil and gas news such as: “OPEC to keep ‘no output cut’ policy” and “Oil Price Forecast: Could Iran Deal Push Prices Higher?”
Pros: Registration is free for a majority of the articles and you can search for feeds that contain exactly what type of news you’re interested in.
Cons: The site only lists headlines so you have to click and read a bit to get a good synopsis of the article.
Google alerts are great for many reasons – but the news feature is like Google search on steroids. I love that it collects the most recent news articles and gives images and a brief synopsis right in my Google page.
Pros: It’s produced by Google – so its user experience is easy, intuitive and one click away if you already use Google for searching for news anyways. It also contains a variety of articles from all locations – not just the top stories run over and over on the same page.
Cons: If you’re looking for insight into the oil and gas industry – this isn’t the place to start. This feed is strictly going to be news stories pulled from the web.
Yes, this is put out by a huge oil conglomerate, but I think its opinion pieces and perspectives on issues the industry is facing today such as fracking, global oil markets and energy topics in general is not only informative but interesting to read.
Pros: It’s not a curated content site for news like the others. Here is a place where you’ll get a little bit on insight into what top energy industry leaders and experts in the field think on timely topics.
Cons: It’s not a neutral site because it’s put out by Exxon. But it’s not a place where they overtly promote their business -and even if they did, it’s their site, right?
Where are the places you browse to first for headlines regarding the industry? What do I need to add to this list?
Source: SherWare Blog
Why is it that some people handle change better than others at work? One of the most common questions we get at SherWare is how hard will it be for someone to switch their software? Which means the underlying question is: how much change is this going to be for our office?
Change is inevitable, and really in the long run a good thing. But change can often be uncomfortable, and no one likes to uncomfortable. Well what if your personality could tell you a bit about how you handle change?
Steve Faktor from Idea Faktory came up with nine corporate personalities in a Forbes magazine interview several years ago that are spot on for some characters I’ve had the pleasure of working with over the years. Reading the descriptions got me thinking: What does your personality tell you about how you’ll handle a major change like a software switch?
Bambi’s are typically new recruits or hires in your office. They start out eager to do anything set before them and you can get them to do about anything you ask, as they are eager to use their skill sets learned in school that they’ve been practicing. They are eager to please and love new opportunities and the prospect of mentorship from others in the office.Bambi
How you’ll handle change: If you’re given new leadership responsibilities because of change, access to superiors and recognition for the hard work you’re putting in – you’re on board. You’ll take on whatever is required to get the software up and running, as long as you get the credit deserved for your effort. You’ll be the one to read the entire manual or getting started guide as soon as it’s downloaded. You’ll have written questions out in the margins, and made it a personal goal to figure this out before everyone else to show others your value in the office.
Believers are the people that carry the torch for your brand and they get others excited about coming to work. They proudly wear the company-logoed shirts and hats, use the coffee mug at home and have pictures of company events hanging up in their office.
Alphas are a branch of the Believers – -and the ones who have the dedication and foresight to eventually take over the business. They love competition and moving up the corporate ladder and are someone who others in the company look up to and take their word as truth. They may be a bit forceful, abrasive and come off as a know-it-all, but the bottom line is they get things done.
How you’ll handle change: As long as you have a direct mandate from your boss this is the direction to go, you are on board. You don’t see switching software as something hard or high risk, like you normally thrive under, but with recognition for your efforts from your superiors and deference or praise from subordinates – it’s all in a day’s work. If you’re a one-man show, then you are looking at the software switch as a way to show how much it improves your performance. You’re looking for how to speed up your work, improve your analytics or cut out time spent on the software in general.
Survivors are also a branch of Believers. They move up the corporate ladder into senior positions but don’t necessarily have the drive to run the show. They know how the office dynamics work, know what’s expected of them and have made it to the top by sheer longevity and lack of rocking the boat. They don’t like taking risks and survive by their loyalty to the Alpha personality in the office.
How you’ll handle change: This is the last thing you want to see happen. You don’t want a new way to handle distributions. Yes, what you do is tedious and often annoying, but it works for you. You probably still have a desktop computer, use a copy of Windows 98 you’ve been hiding on a CD in your desk and have never considered a Facebook account. The only thing that will make change bearable is if you have recognition from others for your effort and the ability to brag to others about it.
Soldiers make up the last branch of Believers. They are team players and excel when told what to do or if they know exactly what’s expected of them. They are dependable, will stay late to finish projects, and are loyal to the company but don’t aspire to run the show. They don’t like to network and schmooze in the office to rise in the ranks.
How you’ll handle change: If switching to a new software program is what’s going down, you’re got it handled. The software switch is clearly something needed, it will help boost the company’s productivity and you’ll get recognized for your effort, so it’s a no brainer. You’ll go through the training required to learn the program, work with the support team to get everything converted accurately and learn how to run the program efficiently.
Pragmatists are very capable at getting the job done, appreciate their job and the company, but aren’t going to take the alpha’s word as truth without data and facts to back it up like the Believers in the office. They’re typically more analytical and skeptical and take more convincing to get on board.
Naturals are a branch of Pragmatists. They are as talented and driven as Alphas, but tend to earn genuine loyalty from building relationships instead of by pure force of personality. They like to network and make decisions based off of what feels right, not just what will get them to the top. They excel in situations where they are working with others who they like outside of the office.
How you’ll handle change: You understand that switching software is what’s necessary to move the company forward, and probably even saw it coming or were instrumental in bringing the need to the attention of superiors. You like having new responsibilities and a challenge at work to learn something new. You can see down the line that this is something that will enhance your job and the company’s productivity.
Heretics are a branch of Pragmatists. They are the ones in the office that you can’t predict what they’ll do. Their harebrained ideas are either pure genius or insane – and it’s a fine line to decide which category they fall. They are big idealists and innovators and will either drive the company to make big exciting changes, or will get bogged down by working in an office with rules and regulations and leave.
How you’ll handle change: Approached in the right way, you’ll easily be on board to handle a software switch. You’ll need to see the big picture of why you needed to change in the first place. But given time to explore the new software on your own and discover how it works without having to worry about manuals, rules or timelines, you’re going to do what it takes to get the rest of the team up to speed with the new software.
Toilers are the last branch of the Pragmatists. They make up the largest population in an office. They view work as a means to support their family and a way to get what matters most to them outside of the office. They aren’t looking for a rise in the company ladder, but will continue on completing whatever is asked – some at incredibly efficient rates and some at super slow paces just because it doesn’t matter to them as long as it gets done. It’s a job. Period.
How you’ll handle change: Change is just another thing thrown at you at work. You could take it or leave it, although change might make the day a little bit more exciting. You don’t really care about the big picture, but want to know what’s the short-term objective. How is switching software going to help you this week, this month, this year? Is there an incentive offered to get it done quickly? You love a little tangible reward to get things done and once you see why switching software is important to your job, you’re on board.
So where do you see yourself?
To read the full descriptions of each corporate personality, check out the article here.
Source: SherWare Blog
Does the following describe you? You own an oil and gas operating company and to save money you or someone else has setup an elaborate spreadsheet to track your oil and gas disbursements. You’ve spent hours setting up this spreadsheet and have duplcated the sheet for each well you operate.
You have the steps memorized.
What happens, heaven forbid, that you are incapacitated or unavailable when the next distribution has to be done. Do you trust someone else with your system?
Here’s a gun, spin the cylinder and pull the trigger. You’ve entered the death by spreadsheet zone.
Here are four reasons you should stop using spreadsheets and consider moving to an oil and gas software instead:
Four Reasons to Stop Using Spreadsheets:
1. It’s inefficient. Spend your time doing what you really need to be doing instead of working on distributions and manually computing everything. With our oil and gas accounting software, once you have your owners/investors, wells and interests set up, the only thing left to do is enter your bills and incoming revenue.
2. They are more prone to errors. Spreadsheets leave room for what I like to call “operator errors.” Mistype one field and there’s no way to catch the mistake until it’s too late. You can spend your time quadruple-checking everything and the tiniest mistakes can still be missed. They are especially prone to errors because you can’t see the formulas by just looking at the sheet. You might have missed a formula or not set the formula to use an absolute cell so when you copied it the formula isn’t looking at the correct cells anymore.
3. Your job is much harder than it has to be. Why manually enter everything each month, figure out the layout and make sure each column has been entered correctly when you can let your oil and gas software compute automatically? Stop reformatting spreadsheets to get the numbers you want. Instantly get the reports you need without having to adjust formulas and rearrange numbers.
4. They don’t really save you money in the long run. When you think about how much time it takes to create, enter and compute your distributions each month. Not to mention all the double and triple checking to tie your numbers, you are paying for it not only in the extra time paid to employees doing the work, but also in the wasted hours you could have been using elsewhere, doing what’s really important to you and your business.
Perhaps this scenario described fits you. Maybe it fits someone else you know. Why not find out more information about our oil and gas accounting software that can simplify your work and make your job easier.
Interested? Find out more about our software packages.
If you are unsure which one may work for your business best, check out our Software Comparision.
We can make the transition between your spreadsheets to our software smoother by converting your spreadsheet data directly into our software. Saving you time on data entry time and giving you all the history and information on your wells you need.
Source: SherWare Blog
Due to the capital intensive, high-risk nature of developing oil and gas properties, companies routinely combine their capital and knowledge in joint operations to share the cost and reduce risk. These sharing arrangements usually involve the transfer an operating interest or non-operating interest by one party to another in exchange for a contribution to the project.
Here’s some of what you need to know for oil & gas accounting…
In order to develop a property, the owner of an operating interest (working interest) may transfer (farm-out) the operating interest. In a farm-out arrangement some of the entire burden for developing the property is transferred to another person. In exchange for assuming the burden, the transferee receives the operating interest in the property.
As a part of the transaction, a non-operating interest is partitioned out of the operating interest and retained by the owner. The retained interest is usually an overriding royalty, but could also be a net profits interest or a production payment. In a farm-out arrangement, the assignor of the mineral interest will transfer any leasehold cost from the operating interest to the non-operating interest.
Joint ventures are a type of sharing arrangement. A joint venture is a nonincorporated association of two or more persons or companies who pool their resources to drill, develop, and operate an oil and gas property or properties.
Each owner has an undivided interest in the property. Joint ventures may be created in several ways, some of the most common being:
An operator’s expenses associated with the operation of oil & gas wells could consist of:
Intangible drilling costs (IDCs) include all expenses made by an operator incidental to and necessary in the drilling and preparation of wells for the production of oil and gas, such as survey work, ground clearing, drainage, wages, fuel, repairs, supplies and so on. Broadly speaking, expenditures are classified as IDCs if they have no salvage value.
The following is a nonexhaustive list of potential IDCs incurred in the exploration and development of oil & gas wells.
Similar to IDCs these expenses are related to nonsalvageable completion costs, including labor, completion materials used, ompletion rig time, drilling fluids etc. Intangible completion costs are also almost always deductible in the same year they take place, and usually make up about 15% of the overall well cost.
Expenditures necessary to develop oil or gas wells, including acquisition, transportation and storage costs, which typically are capitalized and depreciated for federal income tax purposes.
Examples of such expenditures include:
The cost and expenses associated with acquiring properties, including:
The costs associated with operating a producing well. Lease operating expenses can include:
As you can see, there are several different types of costs associated with drilling and producing wells and they are treated differently depending on how the joint venture or partnership is setup. Having a good oil and gas accounting software package is critical to keeping track of these expenses.
Source: SherWare Blog
Most small independent producers, who are not required to use a GAAP method of accounting, use a tax method of accounting or a hybrid of successful efforts and tax.
The rules for tax accounting are set forth in the Internal Revenue Code and the corresponding Treasury Regulations.
The general rule for accounting methods in the Internal Revenue Code states:
Taxable income shall be computed under the method of accounting on the
basis of which the taxpayer regularly computes his income in keeping his books. (IRC Sec. 466(a))
This means that your taxable income is calculated using the same method you use doing your monthly accounting. That’s what “keeping your books” means.
This code section goes on to define the permissible methods. The permissible accounting methods under IRC Sec. 466(c) are:
The accounting method used must clearly reflect income and be consistently applied. Treas. Reg. Sec. 1.446-1 states:
It is recognized that no uniform method of accounting can be prescribed for all taxpayers.Each taxpayer shall adopt such forms and systems as are in his judgment best suited to his needs. However, no method of accounting is acceptable unless it clearly reflects income…provided all items are treated consistently from year to year.
The cash method means that you recognize income when you receive payment, either for the oil & gas produced or for services performed. It also means that you recognize expense when you pay the bill for the expense.
The accrual method means that you recognize income when the oil or gas is produced and expenses when the expense is incurred. So gas produced in March would be March revenue even though you might not receive the payment from the first purchaser until May. Expenses are incurred when you receive the bill for the expense instead of when you pay the bill.
This generally doesn’t apply to oil & gas accounting. It deals with methods such as the “crop method of accounting” and the “long-term contract method”
You can combine methods such as using the cash method for receivables (revenue), and the accrual method for payables (expenses).
Notice that the accounting method can be the cash method, the accrual method or a hybrid method of cash and accrual as long as you stay consistent.
Source: SherWare Blog
The percentages that determine the amounts paid to the different people or entities participating in the well is called the Division of Interests or Division Order. The division order is a document spelling out what the owners in the well are to be paid and when.
The interests (percentages) that make up the division of interests are typically determined in the following manner:
Royalty Owners – paid the percentage their land makes up of the entire drilling unit. If they own 100% of the land the well is drilled on they would typically get a 12.5% royalty.
Overriding Royalty Owners – typically paid around 3%.
Working Interest Owners – pay their share of the expenses based on the amount they invested in the well. If they put up 50% of the cost of the well, they would get a 50% working interest. The working interest owner’s share of the revenue is determined by first subtracting the royalties paid from 100 and then multiplying the remainder by their working interest.
Assume a well has a 12.5% royalty and an overriding royalty of 3.0%. The royalties are paid first so this would leave 84.5% for the working interest owners.
100.0% – 12.5% – 3.0% = 84.5%
|Owner Type||Expense Pct||Revenue Pct|
|Working Int 1||75.00% * 84.50% =||63.375%|
|Working Int 2||25.00% * 84.50% =||21.125%|
Source: SherWare Blog
The lessor’s share of the production is known as the royalty or landowner’s royalty. It is common for the share to be stated as a fraction of the oil and gas produced, for example 1/8. The lessee acquires the right to the oil and gas produced less the landowner’s royalty.
The lessee does not take on a specific obligation to develop the property or to pay delay rentals, but does agree that the lease will expire if the property is not developed or rentals are not paid. Normally the lessee can abandon the lease without penalty.
When the landowner signs the lease, the owner will be given a “Bonus.” The bonus is a sum of money, agreed upon both the Lessor and the Lessee to be given on signing of the oil and gas lease. If there are producing wells near the land, the bonus is usually higher than when there is no drilling yet or none of the existing wells are not producing.
The length of time established in the oil and gas lease is called the “term.” This is the primary length of the lease. The term is usually a fixed length of time, such as one to five years.
Another part of the oil and gas lease is royalty payments. It is an agreed on percentage of the profits of the oil and gas. The lease will specify what, if anything, can be deducted from the royalty payments such as, severance taxes and/or gathering or marketing charges.
If the term of the oil or gas lease extends beyond the time that the bonus was paid, and a well was not drilled, then the Lessee is required to pay the landowner an agreed on sum. This sum could be $1.00 or more per acre. This is called a delay rental. The payment is due on or around the anniversary of the lease. Occasionally oil and gas companies pay this fee up front when an oil lease is negotiated and signed. The company’s failure to pay a delay rental on time cancels the lease.
Source: SherWare Blog
For small or medium sized oil and gas companies, software is often an overlooked part of their business process. People often assume that software is too costly and does not provide a good return on investment (ROI). Here are some important things that aren’t always at the top of your list to consider when deciding whether to upgrade your current software systems that probably should be when dealing with oil and gas disbursement software.
If your business operates wells, tracking income and expenses is incredibly important. Without proper tracking and accounting integration, you could be setting yourself up for problems between your investors and well owners and other parts of the distribution chain – because it all comes down to one thing: accurate numbers.
If you can’t be sure that you 1) have all the pertinent bills, lease details, division of interest breakdowns and production receipts entered correctly for the month and 2) that your math to split it out evenly between 10 or 100 owners in a well is correct, then essentially the work you’re putting in is useless.
What good is it to you if you have the division of interest equations right to divvy up income flowing in, but some bills that were supposed to run through in April were entered with the wrong date and weren’t processed in April’s distribution that you just mailed checks out for?
While there are many things that software can do, the most important thing to look for in a software program is how it handles the data you enter. How much of the software is run on automated processes either you set up or are already set up within the software?
Are there checks in place to be make sure everything you’ve entered for the period you’re processing is showing up? How do you know if the division of interest has been added up correctly? Does the software automatically link bills to wells to owners or do you manually type that in? How much room for error is there?
From well-specific to owner-specific information, data in your business needs to be accessible and available to interested parties. When considering a software upgrade, your data needs are nearly as important as managing distribution. The more parties which you need to interact with on a daily, weekly, quarterly or yearly basis, the more oil and gas software can produce positive results. The next thing you should consider is how easily can your data be shared with others?
What reports can be created? How quickly can they be reproduced? How will I get monthly distribution statements out? Can I email reports to investors when they call in? Can I create tailored reports for the accountant and COO to get the numbers they need?
What if I need to go back and look at reports from January? Will they still be available?
Getting answers to your questions regarding how proficient the software’s reporting capabilities are is paramount. Automation does you no good if it’s cumbersome to share the data with those asking the tough number questions.
And finally, your business’s need for information management needs to be balanced with your budgeting priorities. In order to decide when start with a new software program, you must address the price of software versus the cost of labor to manage your information without the software.
For businesses, one of the chief ways to decide whether the cost of upgrades are worth more than the expense is through the simple accounting equation to analyze profits – income (or money saved) minus expenses (and labor) equals profit. Installing a new software system makes sense if the money saved (or earned) is worth more than the costs of installing and training on the new software.
So the final piece to look at, and the one that often is the only piece looked at, is to ask yourself, is it worth it?
How much time could be saved with new software? What personnel changes could I make with new software? Will I no longer need an accountant to handle this aspect of my business? Can my office manager finish disbursements in less time – leaving her more time to complete all the other tasks?
What costs can be saved by handling everything in one place? If I am able to handle AFEs, leases, directly deposit revenue into an owner’s account and no longer need to print and mail statements, for example, how much time, office supplies and money could I save per month?
Now the final question is does your current system for handling distributions and joint interest billing meet all of these requirements you’ve just answered for yourself?
Source: SherWare Blog
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…
Source: SherWare Blog
As we’ve said in a prior post, “Accounting is Accounting”. This means that all accounting is essentially the same except for what you’re “accounting” for. What are you keeping track of? In the case of oil & gas accounting, you’re keeping track of wells that are being drilling and the products those wells produce over their lifespan.
In order to understand this accounting process, it’s good to take a look at how a well comes to be.
So how does a well get drilled? How do they determine where to drill the well? How are they sure where oil & gas will be found?
An oil & gas operator will research different areas where oil & gas has been found in the past. But before they can begin drilling, they have to have permission to drill from the landowner and/or mineral owner where the well is to be drilled. They will need to get a Lease from the landowner and/or mineral owner in order to drill on their property. A lease is a legal document that spells out what the operator or owner of the lease will do for the landowner for the permission or right to drill wells on their property. There are also payments involved in order to get the lease. These payments consist of a lease bonus of so many $ per acre being leased.
Usually, in order to keep the lease until a well is drilled, the operator has to pay Delay Rental Payments to the landowner of so much per acre per year. This keeps the lease in effect until a well is drilled on the property.
Production from the well will be paid to the mineral owner, (hereinafter called the Royalty owner). The amount paid is typically 12.5% – 25% of the production before expenses.
Sometimes, the person who found the lease and did all the work in getting it signed, called the Landman, is paid by giving them a percentage of the production from the wells on the lease. This is called an Overriding Royalty. This percentage usually varies from 1% – 5%.
The people who provide the money to drill the well are called Working Interest owners. Their percentage is based on the amount of money they invested. Working interest owners share in the expenses incurred during the drilling and production phases of a well.
Find out more by downloading our free Oil & Gas Accounting 101 ebook below!
Source: SherWare Blog