The Oil and Gas Consulting Company

Revenue Audits

What is a revenue audit?

A revenue audit is performed to determine if working interest, net profits, royalty, or overriding royalty interest revenues are properly paid under the applicable agreement(s), such as a Joint Operating Agreement (JOA), marketing agreements, farmout agreement, net profits lease, or oil and gas lease. 

Complex gathering systems, processing plants, midstream operations, and oftentimes numerous intermediaries and operator-affiliated parties, paired with increasingly complicated contract provisions, require specific expertise to conduct a proper and thorough revenue audit. 

Most times it is impossible to decipher the sales volumes, prices paid, deductions taken, or even the net revenue interest from revenue remittances, much less make sure they are correct. 

  • Why do the volumes on my remittance not tie to the state reported production volumes? 
  • Why is the price received so different from NYMEX or WTI Cushing? 
  • Is the “gross price” on my remittance really the “gross price” or is it net of embedded deductions? 
  • What kinds of deductions are being taken out and why?  My agreement says “no deductions.”
  • Are taxes properly calculated?

Determining if you were credited the proper oil and/or gas volumes, if contractual prices were received, or if all deductions are allowed under your specific contract, most often requires an in-depth revenue audit.  Martindale has performed thousands of these audits and has an employee-based staff with the expertise to handle your project.  Our staff has seen and worked through almost all the revenue accounting systems and revenue accounting methods used by most operators and oil and gas accounting companies. 

The Council of Petroleum Accountants Societies (COPAS) created Accounting Guideline 21 (Revenue Audit Protocols) to assist operators and working interest, royalty, or other owners in navigating the steps for a successful revenue audit.  Several Martindale employees were on the team that drafted the latest version of AG-21, so we know how the process is intended to work and can guide you through the steps for a successful revenue audit.

Common revenue and revenue-related concerns for non-operators and royalty owners include:

  • Non-arm’s length sales to affiliates
  • Weighted Averages Sales Prices (WASP)
  • Fuel, flare, and lost and unaccounted for gas volumes
  • Sales volumes compared to state or Federal reports
  • Shrink volumes
  • Affiliate gathering deductions
  • Affiliate processing deductions
  • Marketing deductions
  • Weighted average deduction pools
  • Gross proceeds provisions
  • Highest price provisions
  • Fixed recoveries vs actual recoveries for NGLs
  • Payout calculations
  • Net Profits provisions and calculations
  • Gas plant proceeds and volumes
  • Percent of Proceeds (POP agreements)
  • Proceeds owed to bank trust departments
  • Royalties owed to state and Federal governments
  • Gas balancing
  • Allocation methods for residue, NGLs, and oil sales