One area of oil and gas accounting that probably receives less attention than it should is the topic of regulatory compliance. Mr. Federal Tax Collector as well as the great State of Texas, and everywhere else there is oil and gas production want their share of the revenue generated by extracting hydrocarbons from the land under their borders.
Oil states are, after all, highly dependent on severance taxes as a source of revenue. However, with the volatility of commodity prices, generating stable cash flows is an enormous challenge for state entities. With the ongoing global collapse in demand and significant retraction in commodity prices as well as a wave of bankruptcies, there are likely to be major implications on severance tax figures.
Even the federal level proposals are under review with revised royalty implications. Congress is currently reviewing HR4364 – The Taxpayer Fairness for Resource Development Act of 2019. This bill proposes changes to The Mineral Leasing Act, the Outer Continental Shelf Lands Act, and the Federal Oil and Gas Royalty Management Act of 1982. One of the material changes under HR4364 includes increasing the federal royalty rate to 18.75% from 12.5%. That change would be detrimental to onshore producers.
If your organization is expanding operations and purchasing assets or looking at an opportunity to drill in a new state, this issue may be of concern to you.
At Eddye Dreyer Financial Services, our regulatory team is led by Michael Sturdy. Michael is responsible for overseeing the calculation, preparation, filing, and payment of both oil and gas severance taxes as well as state royalties across several different states. Each government entity has its own set of rules and you better have someone on your team who can handle the complexity of staying on top of exactly what you owe, who you owe it to and when to remit.
Staying compliant across the multiple levels of the legal framework is a challenging occupation and position that requires ongoing education to adapt to new laws. We are fortunate to have Michael and his self-driven, results-oriented approach on our team. His years of experience in accounting and specifically regulatory compliance bring tremendous value to our customers and he is consistently recognized for meeting filing deadlines on time. If you’d like to schedule some time to speak with Michael about the economic impact regulatory compliance is having on your operation, contact us today.