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Oil & Gas Accounting

In: Business and Management

Submitted By Almasy
Words 409
Pages 2
Home Work – Oil & Gas Accounting

Page 33 & 34

Question 5

• Economic interest in oil and gas:

After an E&P company has identified an area with potential, the company will seek to acquire the right to explore, develop, and produce any minerals that might exist beneath the property, unless it already holds this right. This right, along with the right to simply share in proceeds from the sale of any minerals produced, is referred to as mineral interest or an economic interest.

• Mineral rights

U.S law assumes that for ownership purposes, the surface of a piece of property can be separated from minerals existing underneath the surface. When a piece of land is purchased, one may acquire ownership of the surface rights only, the mineral rights only, or both rights.

• Mineral interest

Is an economic interest or ownership of minerals-in-place, giving the owner the right to share of the minerals produced either in-kind or in the proceeds from the sale of the minerals.

• Royalty interest

This type of mineral interest is created by leasing. The royalty interest is retained by the owner of the mineral rights when that owner enters into lease agreement with another party.

• Working interest

This interest is created via leasing and is responsible for the exploration, development, and operation of a property. The working interest is responsible of paying all 100% of the cost.

• Overriding royalty interest

Is a nonworking interest created form the working interest. The ORI’s share of revenue is a stated percentage of the share of revenue belonging to the working interest from which it was created.

• Production payment interest

This interest is a nonworking interest created out of a working interest and is similar to an ORI, except that a production payment interest is limited to a specified amount of oil or…...

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