This is a simple explanation of the elementary principle phases of the Oil and Gas business as far as using Derek for the Accounting of the business.
The Operator finds a place he would like to drill a well
Somehow the Operator finds a spot he thinks is likely to produce oil or gas.
The Operator Leases the Land
The Operator locates the Owners of the Land and arranges to Lease the Land for purposes of drilling a well. This arrangement may require the Operator to pay the Owners a monthly fee, plus an arrangement is made to pay them a percentage of the proceeds of the revenue generated when the well starts producing oil or gas.
Forms a Partnership
Since the cost of drilling a well is quite expensive, the Operator decides to raise some money from Investors to help defray the costs. For example, the Operator projects the well will cost $300,000 to drill. He decides to solicit 30 Investors at $10,000 each.
Investors Send Money
Each Investor can send his entire $10,000, or it might be constructed such that each Investor sends $5,000 and will be billed the remainder as expenses are acquired.
Begins Drilling the Well
As the Operator begins to drill the well, he begins to acquire Expenses - Invoices are sent to the Operator. These Expenses need to be Billed to each Investor for his fair share.
Well Begins to Produce Oil or Gas
Now that the Well is producing oil or gas, the Operator begins to sell the product to a Purchaser. The Purchaser sends the Operator a Run Check periodically(monthly). This revenue needs to be disbursed to each Investor for his fair share.
In the end, we wind up with a new Producing Well that has many owners.
Royalty Owner - the folks that Own the Mineral Rights to the Land - usually does not pay expenses but receives Revenue
Override Owner - like a Royalty Owner but he does not own the Mineral Rights - usually does not pay expenses but receives Revenue
Working Interest Owner - Pays Expenses and Receives Revenue
This well will be added to the Unit/Well File.
Each Investor will be added to the Owner/Customer File.
Each Investor will be added to the Division of Interest File - listing his fair share of Expenses and Revenue for the Well.
You are now ready to start entering Expenses and Revenue for the New Well.
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