Oil and Gas Accounting Documentation Best Practices

by Cody Asche

Accounting Manager

Accurate oil and gas accounting depends on more than entering the right numbers into the right system. Those numbers also need to be supported by clear records showing where the information came from, what was approved, who owns what, and why certain accounting decisions were made. When that documentation is complete and easy to find, accounting teams can work more efficiently, resolve questions faster, and have greater confidence in the accuracy of their reporting. When it is missing or incomplete, even a relatively simple issue can become much harder to untangle.

For more than four decades, Martindale Consultants has helped upstream oil and gas companies work through accounting, joint interest billing, audit, regulatory, and operational challenges. Accounting Manager Cody Asche brings extensive experience in upstream oil and gas accounting and joint interest audits, including work with hundreds of operators, accounting systems, ownership structures, and joint operating agreements. Through that work, he has seen how documentation can provide an early indication of whether an accounting issue may be larger than it first appears.

“The only real canary in the coal mine [for an accounting problem] is when I go looking for documentation and find that it does not exist,” he says.

Why Documentation Matters in Oil and Gas Accounting

Oil and gas accounting depends on information coming from many different places. Ownership changes, approvals, agreements, operating decisions, cost allocations, and other details may all affect how a transaction is handled. The accounting records show the financial result, but the accuracy of that result depends on whether the information behind it was complete, current, and applied correctly.

That is what makes documentation so important. A transaction may look straightforward in the accounting system, but the numbers rely on several separate records and decisions that were made outside of accounting. An AFE, a joint operating agreement, a division order, an approval, an ownership record, or communication between departments may each provide part of the information needed to determine how a cost should be charged, how revenue should be distributed, or how an interest should be reflected.

Accuracy in oil and gas requires more than recording the right amount. Accounting also needs reliable support for who the amount belongs to, how it should be divided, what was authorized, and which agreement or procedure applies. If one piece of that information is incomplete, outdated, or inconsistent with another, it can cause significant headaches for the accounting team.

Clear documentation brings those pieces together. It gives accounting teams a reliable basis for making decisions, helps maintain consistency as information changes, and provides a clear record of how the numbers were reached. In an industry where the same transaction may be shaped by ownership, contractual, operational, and accounting information at once, that supporting record is a critical part of maintaining accurate books.

The Difference Good Documentation Can Make in Your Oil and Gas Accounting

Good documentation gives accounting teams a clear record of the information behind the numbers. It helps confirm ownership, support approvals and allocations, explain how decisions were made, and show why a transaction was handled a certain way. That makes it easier to record transactions accurately the first time and easier to answer questions when they come up later.

The benefits also extend beyond day-to-day accounting. Clear, accessible records can reduce the time spent researching old transactions, make audits and reviews easier to manage, help resolve ownership and payment questions, and provide important support during acquisitions or disputes. In many cases, the value of good documentation becomes most obvious months or years after the original transaction, when someone needs to understand what happened and the people involved may no longer be there to explain it.

Here’s how good documentation can improve your oil and gas accounting operations.

It gives your accounting team better information to work from.

Accounting teams can only work with the information they receive. If an ownership change is not documented or communicated clearly, revenue or expenses may be assigned incorrectly. If an approval cannot be found, it may be difficult to confirm whether a cost was properly authorized. If there is no clear support for an allocation, someone may have to go back and determine how the calculation was originally made.

Even a correction that appears simple can affect more than one transaction or owner. If an owner questions a payment and their interest is adjusted, for example, the rest of the ownership deck still has to remain balanced. Without clear records showing what each party was entitled to and when those interests changed, accounting may have to review prior periods and recalculate multiple owners to resolve what started as a single payment question.

Clear documentation gives accounting teams a stronger foundation for both getting the numbers right and supporting those numbers later. It also helps keep a small issue from turning into a broader accounting cleanup.

It makes audits, reviews, and disputes easier to address.

Documentation becomes especially important when someone outside the original accounting team needs to review a transaction. During a joint interest audit, for example, an auditor may need to confirm that a cost was authorized, allocated correctly, and supported by the applicable agreements and records. Similar questions can come up during internal reviews, regulatory inquisitions, distribution/billing disputes, or requests from non-operating partners.

When the supporting records are organized and available, those questions are generally easier to answer. When they are not, the company may have to search through old files, emails, systems, and correspondence to recreate what happened.

One dispute Cody encountered involved an AFE that had been sent to the wrong legal entity after two similarly named companies were confused. When the correct owner later challenged whether it had agreed to participate in the work, the company could not simply produce the executed AFE and settle the question. Accounting, land, operations, management, and other parties had to go back through historical records to determine who owned the interest, what had been authorized, and how the costs had been handled. What should have been a straightforward record of authorization became a much larger use of time and resources and added to the financial and legal exposure surrounding the dispute.

It helps keep ownership, billing, and payments accurate.

Ownership documentation has a direct effect on both revenue accounting and joint interest billing. Interests may change through assignments, acquisitions, inheritance, and other transfers, and those changes need to reach the people responsible for updating the accounting records.

This can become especially complicated on older producing properties, where ownership may have changed or divided many times over the years. Martindale has worked with situations where interests were acquired or consolidated, but the change either did not make it back to accounting or arrived without the legal documentation needed to support the update. Accounting may then continue working from an outdated ownership deck until a payment question or another discrepancy brings the problem to light.

By that point, correcting the records can mean researching historical ownership, determining when a change should have taken effect, and reviewing the revenues or expenses distributed under the old interests. Keeping ownership records current and making sure those changes are communicated to the right parties can help prevent that kind of historical cleanup.

It can make acquisition and due diligence more efficient.

Good documentation also matters when oil and gas assets change hands. Buyers may need to review ownership decks, agreements, historical costs, accounting procedures, regulatory data, and other records that explain how the assets have been managed.

In practice, a buyer does not always receive every piece of historical information connected to the properties it acquires. Questions may surface later when a royalty owner challenges a payment or someone needs to understand how a historical transaction was handled, only to find that the new operator has limited records from the prior owner. Because acquisition effective dates may also precede the actual closing date, the buyer can remain dependent on the seller’s records to account for activity during the transition.

Complete, organized documentation gives both sides a clearer picture of the assets and reduces the amount of historical research needed later. It can also make it easier to answer questions before they slow down due diligence or become inherited problems for the buyer.

It reduces the need to reconstruct the past.

Documentation becomes harder and more expensive to recreate as time passes. Employees leave, accounting systems change, assets are bought and sold, files are moved, and old emails or correspondence become harder to locate. The further removed a company is from the original transaction, the more difficult it can be to rebuild the full story behind it.

A question that could have been answered quickly when the transaction occurred may require hours of research several years later. Accounting may need help from land, operations, legal, former employees, auditors, or outside consultants simply to determine what happened and why. In ownership matters, that delay can also allow an unresolved issue to affect additional periods or owners before it is finally corrected.

Good documentation preserves that information while it is still available. It reduces reliance on individual memory, gives future employees a record they can follow, and allows accounting teams to spend less time reconstructing old decisions and more time working with accurate information they can trust.

What Good Oil and Gas Accounting Documentation Looks Like

Good documentation does not mean creating extra paperwork for every routine transaction. It means keeping enough information to clearly support the decisions that affect accounting and making sure that information can be found when it is needed.

Depending on the transaction, that may include:

Ownership and division order records that support divisions of interest and document changes over time.
AFEs and approvals that show what work or spending was authorized.
Joint operating agreements and related agreements that explain how costs and responsibilities are shared.
Support for allocations that shows how costs or revenues were divided.
Approvals for unusual or significant transactions so the reasoning does not depend on one person’s memory.
Records of process or methodology changes that explain why accounting was handled differently from one period to another.
Relevant communication between departments when decisions made by land, operations, legal, or management affect accounting.

The most useful documentation is clear, consistent, and easy to connect back to the transaction it supports. A document that exists but cannot be found when someone needs it provides no value.

Build Better Documentation Practices with Martindale Consultants

Better documentation starts with making it part of the accounting process from the beginning. Operators can strengthen that process by:

Documenting approvals, ownership changes, allocations, operational changes, and other key decisions while the information is still current;
Creating clear expectations for what needs to be saved, where it should be stored, and who is responsible for keeping it up to date;
Making sure information from land, operations, legal, management, and other departments reaches accounting when it affects financial records; and
Reviewing recurring accounting questions or research needs for signs that documentation or communication may be breaking down.

These practices become increasingly important as companies grow and more people, assets, owners, systems, and transactions are involved. Regular reviews can help identify weak points before they lead to billing errors, payment issues, audit questions, or time-consuming historical research.

After more than 40 years in the oil and gas industry, Martindale Consultants has worked with hundreds of operators across different accounting systems, ownership structures, joint operating agreements, and business environments. Our team also combines expertise across accounting, audit, regulatory, land, and other areas of oil and gas operations, giving clients access to a broad range of in-house experience when an issue crosses departmental lines. That depth and range of perspective allows us to identify where documentation and accounting processes may need improvement, evaluate problems from more than one angle, and recommend practical changes that support more accurate, consistent, and reliable accounting.

Contact Martindale Consultants today to discuss how stronger documentation practices can help improve your accounting processes and reduce the time spent resolving problems later.

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