We are wrapping up our series on the top 5 ways oil & gas investors are underpaid by producers. These have ranged from underpayments due to improper deductions and incorrect ownership decimals to funds in suspense and payout conversion. Each post has taken a close look at the reasons, risks, and methods to prevent such underpayments, so be sure to read the entire series.
Our final type of underpayment is essentially a problem inherent in keeping two sets of books for production accounting.
Oil & gas operating companies are driven by two monthly production reporting cycles. First, operators must account for production sales in order to calculate and issue payments to interest owners. Second, producers must adhere to strict state regulatory reporting requirements for individual wells and lease-level production.
It’s not uncommon to be underpaid on mineral interests because the production volume reported on your check stub is less than the final number reported to the state. This can happen for a variety of reasons, not least of which is production allocation complexity or even gas flaring that results in a discrepancy.
Risk to Investors
Spotting inconsistencies between volumes reported on your check stubs and publicly reported volumes is extremely difficult given the amount of data points involved. Oil, gas, and NGL volumes are often multiplied by thousands of wells in a portfolio, making it a data management problem more than anything.
Given the poorly organized state of most government regulatory websites and datasets, comparing production reported to you with state data can be overwhelming for most investors. Even worse, reporting standards vary widely from state to state, with some states, including Texas, only reporting lease level production.
Unlike the other types of underpayments we have looked at, which involve a lot of due diligence and manual fact checking to prevent, production verification can be completely automated.
MineralSoft combines data from the Oildex check stub exchange and Drillinginfo’s quality public data with purpose-built production verification tools. As a result, investors can verify check stub production volumes with data reported to the state in real-time, enabling faster identification and recovery of funds.