CMM Revenue Distribution & Accounting 3 — Questions and Answers
Question 1: In oil and gas revenue accounting, what does the term 'suspense account' refer to?
- An interest-bearing account held by the state for abandoned property
- Funds withheld from distribution due to title disputes, missing addresses, or unclear ownership (Correct answer)
- Revenue set aside for plugging and abandonment obligations
- A reserve for disputed royalty audit findings
Correct answer: Funds withheld from distribution due to title disputes, missing addresses, or unclear ownership
Suspense accounts hold undistributed revenue when there are title questions, missing owner information, or unresolved division order issues preventing normal payment.
Question 2: Under most state unclaimed property (escheat) laws, how long must oil and gas revenue remain in suspense before it must be remitted to the state?
- 6 months
- 1 year
- 3 to 5 years (Correct answer)
- 10 years
Correct answer: 3 to 5 years
Most states require operators to escheat suspended oil and gas revenue to the state after a dormancy period of 3 to 5 years, though the exact period varies by state.
Question 3: A joint interest billing (JIB) statement serves what primary function in mineral management accounting?
- It reports production volumes to regulatory agencies
- It allocates and invoices non-operators for their proportionate share of joint operation costs (Correct answer)
- It documents royalty payments made to mineral owners
- It calculates the operator's carried interest in a well
Correct answer: It allocates and invoices non-operators for their proportionate share of joint operation costs
A JIB (Joint Interest Billing) statement is the monthly invoice the operator sends to non-operators billing them for their working interest share of lease operating expenses and capital costs.
Question 4: What is the purpose of a 'gas balancing agreement' in the context of revenue distribution?
- To equalize BTU content of gas delivered to different pipelines
- To resolve imbalances when co-owners take unequal shares of gas production relative to their ownership interest (Correct answer)
- To balance gas storage injections against withdrawals
- To ensure royalty payments are equal among all mineral owners
Correct answer: To resolve imbalances when co-owners take unequal shares of gas production relative to their ownership interest
Gas balancing agreements govern what happens when co-owners take more or less than their proportionate share of gas production, creating 'overlifts' and 'underlifts' that must be settled.
Question 5: For federal onshore leases, ONRR requires royalty payments to be submitted by what deadline each month?
- The 10th of the following month
- The 15th of the following month (Correct answer)
- The last day of the following month
- The 20th of the second following month
Correct answer: The 15th of the following month
ONRR requires federal royalty payments and production reports to be submitted by the 15th day of the month following the production month.
Question 6: When calculating the net revenue interest (NRI) for a working interest owner, which formula is correct?
- NRI = Working Interest × (1 + Royalty Rate)
- NRI = Working Interest × (1 – Royalty Rate) (Correct answer)
- NRI = Working Interest ÷ Royalty Rate
- NRI = Working Interest – Lessor Royalty
Correct answer: NRI = Working Interest × (1 – Royalty Rate)
The NRI equals the working interest percentage multiplied by (1 minus all royalty burdens), representing what fraction of revenue the working interest owner actually receives.
Question 7: A 'take-or-pay' contract in gas sales requires the buyer to:
- Accept delivery of all gas produced regardless of market conditions
- Pay for a minimum volume of gas whether or not they actually take delivery (Correct answer)
- Take gas only when the spot price exceeds the contract price
- Pay royalties directly to the mineral owner bypassing the producer
Correct answer: Pay for a minimum volume of gas whether or not they actually take delivery
Under a take-or-pay contract, the gas purchaser must pay for a minimum contracted volume even if they choose not to take physical delivery of the gas.
CMM Revenue Distribution & Accounting 3
In oil and gas revenue accounting, what does the term 'suspense account' refer to?