So you just got a great deal on a new lease, but as is often the case with great deals, this one came with a few strings attached. The previous operator failed to keep up with regulatory filings and now you’ve got to dig yourself out of an unenviable position. So what do you do? With a bit of effort you can right the ship and navigate your lease back into smooth sailing. This blog will help you get started.

One of the first things any new lease owner should do is ask the previous operator what reports are required on a monthly, annual, and semi-annual basis. Operators and purchasers are often willing to give a short list of what they’ve already reported and what they need to report. In some cases, former operators may provide a previous month’s reporting to help get the new owner started.

Two of the trickier filings you’ll need to tackle are monthly production reports, submitted to the Texas Railroad Commission (RRC), and monthly severance reports, submitted to the Texas Comptroller. Let’s take a closer look at what you’ll need to do for these two filings…

 

Monthly Production Reporting

For monthly production reporting to the RRC, you (the operator) will need to provide the following to whomever is doing your reporting:

Basic lease identification information, such as:

    • RCC number – a five or six digit number given to all oil and gas leases in the state of Texas (for newly drilled leases, a drilling permit number will be assigned until a permanent RRC number is given)
    • The reporting district each lease is in
    • A commingle permit number, if the lease is part of the commingle agreement

Production and disposition information, including:

    • The oil balance at the beginning of the month
    • Barrels of oil sold
    • Barrels produced
    • Ending oil balance on hand at the end of the month (which will become the beginning balance for the next month)
    • Any sold or disposed natural gas
    • How oil and gas are transported off the lease (truck, pipeline, etc.)

 

Monthly Severance Reporting

For monthly severance reporting, you will need to know who is responsible for reporting and paying both oil and natural gas severance taxes. In some agreements, the purchaser handles severance reporting and takes the necessary taxes out of their payment to the operator. Most commonly, a purchaser will take care of severance for crude oil and the lease operator takes care of natural gas severance reporting, with payment falling to the operator. With that said, every agreement is unique—be sure to check your contract!

Once you know which severance reports you are responsible for, you will need to provide the following to your reporter:

Basic lease identification information, such as:

  • RRC number
  • County where the lease is located
  • Name of the lease
  • Any applicable severance tax exemptions

Basic reporter information, such as:

  • Name of the operator
  • Texas Taxpayer ID: an 11-digit identification code (Be aware: this is not the same as your company’s FEIN)

Sales and disposition information, including:

  • Sales of natural gas in MCF or oil (in BBLS), including volumes, gross value, and any deductible marketing charges that may be applied
  • Volumes and values of any gas that is not taxed, such as RRC-approved flared gas
  • Purchaser statements (Be sure to note if several leases are sold as one unit, and provide an allocation for each lease)

Login information for the Texas Comptroller’s Electronic Data Interchange (EDI) system, which is used to file severance reports online. Any taxpayer whose tax burden was more than $10,000 in the previous fiscal year must file severance online.

Login information for payment method, if necessary. Possible payment options include:

  • Payment made with electronic filing (requires banking information to complete)
  • Payment made through the Comptroller’s WebFile system
  • Payment made via the TexNet Electronic Payment Network

This guide is by no means definitive authority on settling up oil and gas compliance issues, but it should put you in a good position to hit the ground running. Even if you have an in-house bookkeeper, some well operations call for quick, expert assistance to get a lease turned around and in compliance. After all, you won’t see any profit if your well gets shut down or your operation gets sued.

Think you might need professional help? Contact our team of experienced oil and gas bookkeepers today.