What Is a Gas Balancing Agreement
From the point of view of the operator/producer, an imbalance occurs when a partner of interest in a well does not take over or receive its legitimate share during a month of production. Due to less accurate measurements of products in flow, imbalances are frequent. Currently, gas imbalances are more common than oil imbalances. As pipelines become more common, oil balancing can become an issue. However, this article focuses on gas imbalances in the wellhead. These situations pose additional challenges when it comes to reporting to the IRS. The federal agency requires consistent methods to be used to report revenues from gas sales when imbalances have occurred, which means that gas well owners must use the cumulative gas balancing method for tax purposes, except in cases where the IRS has granted extended authorization to use the annual gas balancing method. In a cumulative gas equalization agreement, each producer must recognize its income as the gas it markets. This means that an owner who produces too much can only demand a deduction for a compensatory payment to the sub-producer. However, a sub-producer must report these payments as income. Additional complications can arise when different owners track their imbalances based on different selling prices. This can lead to confusion when reporting to the IRS. If a co-owner does not comply with IRS guidelines for cumulative gas accounting, this can result in payments due to the IRS as well as penalties.
It is important that the operator`s back office is aware of the gas balancing agreements (GBAs) that are in the JOA of each well. These GBAs provide operator policies for the necessary monitoring and reporting of imbalances to Wi-York partners, whether monthly, quarterly or annual. This agreement also contains conditions in the event of an imbalance settlement or disbursement. To account for multi-party ownership and fluctuations in production, owners often enter into gas equalization agreements. Gas balancing helps maintain the flexibility of an oil well`s production while taking into account situations in which a site within a certain period of time, e.B. a month or quarter, has overproduced or by-product or if an owner has sold more share of the gas stream than other owners. These situations are called pipeline imbalances and producer imbalances. Working with a chartered accountant trained in oil and natural gas accounting can help bring records of gas accounting agreements into compliance with IRS standards. For more information on this and other topics in the oil and gas industry, contact a member of LaPorte`s Energy Industry Group today.
From small E&P operators in one game to large ones across the country, everyone encounters the need to track imbalances. While pipeline imbalances are common in the midstream sector, upstream oil and gas typically experience imbalances at the wellhead. Since production, land order/division, marketing, and sales departments are typically involved, understanding an operator`s balancing requirements and the tools to track them properly requires a centralized solution. “Gas balancing determines how production imbalances are reconciled between owners.” Selling gas in the current natural gas marketing environment can unbalance the interests of workers` owners with their share of gas in a producing reservoir. To combat this, several gas equalization agreements have been drafted, which are currently used in industry; However, many of these agreements do not adequately address the practical technical problems that arise when balancing gas, the practical technical problems that arise when balancing gas production. These problems include balancing condensate production. These issues include balancing condensate production versus balancing gas production, owner production versus balancing gas production, balancing gas production, owner imbalance at the time of acquisition or sale, and appointing and assigning pipelines and buyers. This paper addresses these balancing issues and proposes practical solutions that can be included in a standard gas equalization agreement. A model agreement is provided in Appendix A. There can be different types of gas imbalances, for example between.
B owners of union interests and pipelines and buyers. This article deals only with gas imbalances that occur between owners of labor interests in a producing property. Property. In a perfect world, gas balancing would not be a problem for an operator. Unfortunately, in the real world, monthly measurement errors are made that require a competent and proactive upstream accounting department to stay on top of these issues. By understanding what to look out for and answering the appropriate questions that need to be asked by internal and external marketers in relation to the terms of this gas equalization agreement, the gas imbalance can become a truly balanced balancing act…