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Accounting for Oil and Gas Productions

Chart Of Accounts For Petroleum Exploration Company



Every type of company will, of course, tailor its chart of accounts, procedures, subsidiary records, etc., to meet its own operating and organizational needs and the philosophy of its management. Chart Of Accounts [COA] for petroleum exploration and producing companies is unusual because they may include the accounts needed for either successful efforts method or the full cost method adopted.

In this post, however, for a comprehensive illustration, the chart of accounts include additional accounts needed for full cost accounting. An account unique to either accounting method is noted by an S or F in the left margin. It must be kept in mind that these charts of accounts are merely indicative of the type of accounts that might be maintained by an oil and gas company. Some of the accounts contained in the chart I am going to post here are peculiar to oil and gas operations. Enjoy!



Before going to the chart of accounts details, lets first overview how organization of petroleum exploration companies and its accounting function are structured. Or you may want to jump right on the chart of accounts [go here]. Read on..


Organization Of A Petroleum Exploration and Producing Company

The organizational structure of a petroleum exploration and production company is important to the accountant in many ways. The structure determines how authority is delegated and responsibility is assigned, permitting accountability to be established. Accounting procedures and the flow of paperwork within the company are directly related to the company’s organization. The company’s accountants should be familiar with the responsibilities and organization of all departments within the company. This knowledge may be secured by experience and inquiry, augmented by the study of organization charts and company operating manuals.

Structure of an Independent Oil Company

The exact organization of companies in the petroleum industry varies widely, depending on size and diversity of activities. Oil and gas producers may be classified as independents or integrated companies. Usually independents are viewed by the public as being small companies with few employees, and integrated companies are thought of as being giant companies with thousands of employees.

However, there are several large oil companies that have no refining or marketing operations, and some integrated companies are small. Obviously, size and degree of integration have much to do with a company’s organization. The geographical dispersion of activities likewise is important. It is only natural that an E&P company operating in one geographical area will have closer managerial control from its top officials. As the company expands its operations geographically, top management must look to its regional and district management groups for direct control over operations and leave the home office staff to overall supervisory activities. Similarly, the integrated company requires a greater degree of delegation of authority and responsibility from top management to those directly involved in the diverse operations.

Small and medium-sized oil and gas companies have a great deal in common, especially at the executive level. There are four distinct activities common to almost all producers, and the independent companies usually build their organizations around these functions.

The functions are exploration, production, marketing, and administration; the organization chart in figure below reflects this basic structure. Appreciate that in recent years, some companies have reorganized to create small teams of geologists, petroleum engineers, accountants, and other specialists working together to manage assigned fields or geographic areas of operations.

At this point a general description of the work done in each area will help in understanding the organization chart. Typically the president of a small oil and gas company is a petroleum engineer, geologist, or geophysicist who not only serves as CEO but may also engage in closely directing exploration, development, or production activities. The small company CEO may negotiate joint venture agreements, major property acquisitions and divestitures, and financing arrangements.

The exploration department has the job of locating and acquiring oil and gas reserves. This responsibility includes the acquisition of mineral properties and geological and geophysical exploration (either through the use of company-owned equipment and personnel or through contracts with exploration support companies). Many E&P companies, even very small ones, have one or more geologists on staff, even though most companies hire outside professionals or organizations to conduct geological and geophysical (G&G) studies.

The drilling and production department (or petroleum engineering department) is responsible for exploratory drilling, development drilling, enhanced recovery operations, and field production.

The marketing department arranges the sales of the produced oil and gas. U.S. crude oil is usually sold near the well site, but now natural gas is frequently sold far from the lease to large gas consumers and to gas utilities. Under this arrangement gas pipelines provide transportation services rather than buy the gas from producers.

An administrative department may oversee various administrative functions, such as human resources, finance, accounting, tax compliance, management information systems, public relations, and legal services.

The vice president of administration may be the vice president of finance and chief financial officer (CFO). Some companies break these functions into separate departments, such as a finance department headed by the CFO and containing sub-departments for treasury, accounting, and tax functions.

With this brief description of the four basic functions in the independent oil and gas producing company, let us now look at some of the details of the typical organizational structure designed to carry out these functions.


Organization Of The Accounting Function

The organization of the accounting function in an independent oil and gas company is shown below. The major duties of each section of the organization are summarized below:


Organization of the Accounting Function in an Independent Company

Organization Structure of the Accounting Function




  • Trains and supervises clerical personnel assigned to field operations.
  • Develops systems, forms, and procedures for field accounting and reporting.


  • Maintains equipment and supply inventory records.
  • Prices and records warehouse receipts, issues, and field transfers.
  • Oversees physical inventory taking.
  • Prepares reports on equipment and supplies inventory.



  • Maintains accounts payable records.
  • Prepares vouchers for disbursements.
  • Distributes royalty payments.
  • Maintains corporate delegated limits of authority and verifies that disbursements are made within those limits.



  • Maintains subsidiary records for (a) Unproved properties, (b)Proved properties, (c) Work in progress, (d) Lease and well equipment, (e) Field service units.
  • Accounts for property and equipment acquisition, reclassification, amortization, impairment, retirement, and sale.
  • Compares actual expenditures of work in progress to authorized amounts.



  • Maintains files related to all joint operations.
  • Prepares billings to joint owners.
  • Reviews all billings from joint owners.
  • Prepares statements for jointly operated properties.
  • Prepares payout status reports pursuant to farm-in and farm-out agreements.
  • Arranges or conducts joint interest audits of billings and revenue distributions from joint venture operations.
  • Responds, for the company as operator, to joint interest audits by other joint interest owners.



  • Accounts for volumes sold and establishes or checks prices reflected in revenues received.
  • Maintains oil and gas revenue records for each property.
  • Maintains records related to properties for purposes of regulatory compliance and production taxes.
  • Computes production taxes.
  • Maintains “Division of Interest” master files, with guidance from the land department, as to how revenue is allocated among the company, royalty owners, and others.
  • Computes amounts due to royalty owners and joint interest owners and prepares reports to those parties.
  • Invoices purchasers for sales of natural gas.
  • Maintains ledgers of undistributed royalty payments for owners with unsigned division orders, owners whose interests are suspended because of estate issues, and other undistributed production payments.
  • Prepares revenue accruals.



  • Keeps the general ledger.
  • Maintains voucher register and cash receipts and disbursements records.
  • Prepares financial statements.
  • Prepares special statements and reports.
  • Assembles and compiles budgets and budget reports.



  • Prepares required federal, state, county, and local tax returns for income taxes, production taxes, property taxes, and employment taxes.
  • May prepare other regulatory reports.
  • Addresses allowable options for minimizing taxes.


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