CMM Revenue Distribution & Accounting 2

Question 1

Under the ONRR (Office of Natural Resources Revenue) royalty reporting system, what is the primary document operators use to report and pay federal royalties?

Accepted Answer

Form ONRR-2014

Answer

Form ONRR-2014 is the Production and Royalty Report used by operators to report federal oil, gas, and other mineral production and pay royalties to the federal government.

Question 2

When a gas well produces both residue gas and natural gas liquids (NGLs) after processing, royalties are typically calculated on:

Accepted Answer

The combined value of residue gas plus NGLs

Answer

Royalties are generally owed on the total value of all marketable products — both residue gas and NGLs — extracted from the raw gas stream after processing.

Question 3

A mineral owner receives a division order that incorrectly states their decimal interest. What is the legal effect if the mineral owner signs and returns the division order?

Accepted Answer

It may estop the owner from claiming a higher interest for payments made in reliance on it

Answer

Signing an incorrect division order can estop the mineral owner from claiming additional amounts for payments already made in reliance on the stated decimal interest, though many states limit this effect.

Question 4

In a gas processing agreement, the 'keep-whole' provision protects the producer by requiring the processor to:

Accepted Answer

Return an equivalent energy value in residue gas if NGL extraction reduces the gas BTU content

Answer

A keep-whole agreement requires the gas processor to return enough residue gas to make the producer 'whole' for any energy (BTU value) lost when NGLs are extracted.

Question 5

Which accounting method allocates revenue to the period in which production actually occurs, regardless of when payment is received?

Accepted Answer

Accrual basis accounting

Answer

Accrual basis accounting recognizes revenue when production occurs (the earnings event), not when cash is actually received from the purchaser.

(CMM) Certified Mineral Manager Practice Test

(CMM) Certified Mineral Manager Practice Test

CMM Revenue Distribution & Accounting 2