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Accounting Issues in Oil and Gas Operations, With or Without the COPAS Accounting Procedures

Brian K. Tully, Proceedings of 60th Annual Rocky Mountain Mineral Law Institute (2014)

In many instances, a drilling unit for the production of oil and gas is composed of several different mineral properties, each of which can be held by different working interest owners. When the unit is formed, one of the working interest owners (usually, but not necessarily, the owner of the largest proportionate share in the unit) will be designated as the operator, with responsibility for the drilling operations necessary to produce oil and gas from the unit. In this role, the operator must also, among other things, ensure that each owner of a nonoperating working interest (nonoperator) pays its proportionate share of the expenses associated with operations.
A unit may be formed involuntarily or voluntarily. A unit is formed involuntarily through the use of “forced pooling” statutes or a similar regulatory scheme. When a unit is involuntarily created, the relationship among the operator and the nonoperators will be governed by the forced pooling statutes and other provisions of state law. A unit is formed voluntarily when the working interest owners agree to pool their interests. When a unit is voluntarily formed, the relationship among the operator and the nonoperators is typically governed by a joint operating agreement (JOA), though the parties could proceed without one. If a JOA is in place, it will define the relative duties and obligations of the operator and the n