Common Oil & Gas Accounting Mistakes & How to Avoid Them

by Cody Asche

Accounting Manager

Even well-run oil and gas operators can develop costly accounting issues over time. Communication breakdowns, incomplete documentation, and rapid growth can quietly lead to joint interest billing (JIB) errors, ownership discrepancies, revenue accounting issues, and audit findings. However, building consistent accounting processes, involving accounting early in operational decisions, and leveraging specialized oil and gas accounting expertise can help reduce risk and impact and improve long-term accuracy.

For more than four decades, Martindale Consultants has provided specialized accounting, audit, regulatory, and consulting services to the upstream oil and gas industry, helping operators navigate complex ownership structures, joint ventures, and evolving regulatory requirements. That collaborative depth of expertise allows clients to benefit from professionals with experience across virtually every aspect of oil and gas operations, not just accounting.

Accounting Manager Cody Asche is one of those specialists, bringing extensive experience in upstream oil and gas accounting and joint interest audits, along with firsthand knowledge gained from working with hundreds of operators, accounting systems, ownership structures, and joint operating agreements. His experience, combined with the collective expertise of Martindale’s team, helps operators identify weaknesses before they become costly problems while building stronger, more resilient accounting processes.

What Makes Oil and Gas Accounting Different from Other Industries?

Most businesses maintain accounting records for a single company. Oil and gas operators certainly do that, but they also serve as the financial recordkeeper for the many outside parties who own an interest in the wells they operate. Every revenue distribution, joint interest billing (JIB), expense allocation, and ownership change affects multiple stakeholders whose financial interests must remain in balance.

That creates a level of complexity rarely found in other industries. In addition to traditional financial accounting, upstream oil and gas accounting often requires operators to:

Allocate revenues and expenses across dozens–or sometimes hundreds or thousands–of working-interest and royalty owners.
Prepare accurate joint interest billings (JIBs) that comply with Joint Operating Agreements (JOAs) and applicable COPAS accounting procedures.
Maintain accurate division of interest (DOI) records as ownership changes through acquisitions, assignments, inheritance, or other transfers.
Track production and revenue across multiple products, purchasers, and marketing agreements, including more complex scenarios such as take-in-kind (TIK) elections and gas balancing.
Coordinate accounting information across multiple departments, including land, operations, engineering, production, regulatory, and management, so financial records accurately reflect what’s happening in the field.
Manage owner relations and payment inquiries while ensuring that every adjustment remains balanced across the entire ownership deck, not just for one individual owner.
Support audits, regulatory reporting, and legal documentation with records that may ultimately become part of the permanent history of a property.

Because every ownership interest is connected, correcting what appears to be a simple issue for one owner frequently requires reviewing transactions affecting everyone else associated with the well.

“It’s almost like keeping two sets of books,” explains Cody. “You’re accounting for the company’s share of revenues and expenses, but you’re also maintaining records for everyone else who owns an interest in that production. Those two sets of information always have to stay in balance.”

Maintaining that balance is what makes upstream oil and gas accounting fundamentally different from accounting in most other industries. Every ownership interest, revenue distribution, joint interest billing, and expense allocation is connected, meaning even a seemingly minor change can have implications far beyond a single transaction or a single owner. Accuracy depends not only on recording transactions correctly, but on ensuring that every piece of financial and ownership information remains synchronized across the entire ownership deck.

3 Reasons Good Oil and Gas Operators Can Make Accounting Mistakes

Because so many people, departments, and business processes contribute information to that system, accounting issues rarely begin with a single bookkeeping error. More often, they develop gradually as operational decisions are communicated, documented, and translated into the accounting records. Small gaps may go unnoticed at first, but over time they can lead to joint interest billing errors, ownership discrepancies, payment issues, or audit findings.

While every situation is different, many of those problems can be traced back to three common underlying causes:

1. Communication breakdowns become accounting problems.

One of the biggest misconceptions surrounding oil and gas accounting is that accounting departments create billing errors. In reality, accounting often serves as the place where communication problems finally become visible.

Nearly every significant operational decision has an accounting consequence. Acquisitions change ownership structures. Land departments record new leases and assignments. Field personnel modify facilities or production flows. Management restructures partnerships, negotiates take-in-kind agreements, or enters new joint ventures. Each decision changes how revenues, expenses, or ownership interests should be recorded.

The challenge isn’t that these activities occur, but ensuring accounting receives complete, timely, and accurate information before transactions are processed.

“Accounting is meant to mirror the activities of the business,” says Cody. “Accountants have to understand management’s intentions in order to properly account for the business’s transactions.”

When accounting is brought into the conversation only after decisions have already been implemented, staff often spend more time reconstructing events than recording them correctly from the outset. Because ownership interests must always remain in balance, even a seemingly simple request–such as adjusting one owner’s allocation–may require reviewing and recalculating the entire ownership deck, so what appears to be an isolated correction often affects every other owner associated with the property.

2. Documentation doesn't always keep pace with operations.

Even when everyone understands what happened, accounting still depends on documentation to prove it. Ownership transfers, division orders, executed AFEs, operating agreements, invoices, engineering support, and internal approvals all provide the foundation for accurate accounting. Without those records, accounting teams are often forced to research historical transactions, recreate business decisions, or delay corrections until sufficient support can be obtained.

According to Cody, documentation is one of the most common factors separating operators with consistent accounting processes from those that struggle.

“Documentation is paramount – it drives everything we do.”

The importance of documentation extends well beyond bookkeeping. Accounting records frequently become part of the legal history of a property. During audits, disputes, ownership questions, or litigation, operators may need to demonstrate not only what they recorded, but why they recorded it that way.

One example, says Cody, involved an Authorization for Expenditure (AFE) that was inadvertently sent to the wrong legal entity because two similarly named companies were confused. The mistake appeared minor when the well was drilled, but ultimately contributed to a legal dispute after the correct owner later challenged the participation decision. A simple documentation error created consequences that lasted long after the original transaction had been completed.

3. Growth exposes weak processes.

Many accounting processes function well while an operator is managing a relatively small number of wells. As organizations grow, however, the complexity of upstream accounting increases dramatically. Acquisitions introduce new ownership records and historical accounting data, and mature wells often have ownership that has changed hands repeatedly over decades, creating increasingly complex royalty and working-interest ownership decks. Additional drilling programs also generate more invoices, more AFEs, more partners, and more transactions requiring review.

In these instances, growth itself isn’t the problem–it simply reveals processes that were never designed to operate at a larger scale.

Operators often underestimate how much coordination is required between accounting, land, operations, engineering, and management as the business expands. Without standardized procedures governing how information moves between departments, inconsistencies become more likely, and small issues can quickly multiply across hundreds of transactions.

How Oil and Gas Operators Can Reduce Accounting Errors Before They Become Expensive

No operator can eliminate every accounting correction, but the goal isn’t perfection; it’s to build systems that identify issues early, minimize their impact, and reduce the likelihood of recurring problems. The operators that consistently experience fewer audit findings and fewer owner disputes tend to share several characteristics.

Build consistent accounting processes.

One of the clearest differences between operators with strong accounting performance and those with recurring issues isn’t company size or software, but consistency. Consistency creates predictability and predictability makes errors easier to identify before they affect owner payments or financial reporting.

Successful organizations establish standard procedures for reviewing invoices, documenting ownership changes, allocating expenses, processing joint interest billings and revenue distributions, and responding to owner questions, and those procedures are followed consistently regardless of who performs the work.

Review procedures are especially important. When every transaction is reviewed by multiple professionals with deep experience and expertise, small issues can be identified before they become larger accounting problems.

Include accounting early in business decisions.

Accounting shouldn’t be the final step in an operational decision; it should be included from the very beginning. Whether an operator is acquiring new assets, restructuring ownership, negotiating a joint venture, modifying production infrastructure, or changing marketing arrangements, involving accounting early helps ensure those decisions can be implemented accurately from both an operational and financial standpoint. Moreover, early collaboration reduces the amount of historical research and correction required after transactions have already occurred.

Leverage specialized oil and gas accounting expertise.

Few operators encounter every possible accounting scenario on a regular basis. Questions involving joint operating agreements, COPAS procedures, ownership transfers, gas balancing, revenue distribution, division order management, or joint interest audits may arise only occasionally within a single organization.

Specialized oil and gas accounting firms like Martindale, however, encounter those situations every day.

Drawing on experience across hundreds of operators, accounting systems, ownership structures, and regulatory environments, Martindale Consultants provides clients with practical insight that extends beyond day-to-day transaction processing. Whether serving as a fully outsourced accounting department, supplementing an existing team, conducting joint interest audits, or providing consulting on complex accounting questions, Martindale helps operators strengthen the underlying processes that keep accounting accurate, consistent, and audit-ready.

“We’ve seen hundreds of ways of doing things. If one person hasn’t seen it, someone else down the hall probably has.”

That depth and breadth of experience allows operators to benefit not only from additional accounting resources, but from proven processes developed across decades of serving the upstream oil and gas industry.

Martindale Consultants: Specialized Expertise for Complex Oil and Gas Operations

In an industry where ownership structures, joint operating agreements, and regulatory requirements are constantly evolving, accounting isn’t just about recording transactions–it’s about giving operators confidence that the right processes are in place before problems occur. For more than 40 years, Martindale Consultants has helped upstream oil and gas companies strengthen joint interest billing, accounting, reporting, and compliance by combining deep technical expertise with practical, proactive guidance.

“The most effective approach begins with a well-documented process.” –Cody Asche, Accounting Manager

Whether identifying potential issues before they become costly, helping clients navigate complex accounting situations, or providing experienced support when unexpected challenges arise, Martindale’s focus is on eliminating surprises, protecting our clients’ interests, and providing the peace of mind that comes from knowing there’s a plan in place. Contact Martindale Consultants today to learn how proactive oil and gas accounting expertise can help your organization reduce risk, improve accuracy, and stay ahead of costly accounting challenges.

Prevent Accounting Issues Before They Become Costly

Strengthen your accounting processes, reduce risk, and stay ahead of costly errors with specialized oil and gas accounting expertise from Martindale Consultants.