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Texas Oil Companies and Royalty Management: What We Never Learned from Watching Dallas

Remember the television show Dallas? Now that they have rebooted the series, a new generation is enjoying the exploits of wealthy Texans. But owning an oil company is not all scandal and intrigue. There is a serious and highly regulated business behind it all. (Though you can, of course, do what you will in your own time.)

The oil industry in Texas is tightly controlled. It is not the easy business that television and market price reports have led us to believe. Oil companies that do not own their own land, or that have multiple investors, must adhere to strict royalty accounting and transparency rules. If you do not play by the rules, you will find yourself insolvent almost instantly (and there will not be a quick fix waiting in next week’s episode).

Dallas-Texas-Oil-Companies-and-Royalty-ManagementWhether you enter the game as an investor, landowner, or fledgling oil producer, here is what you need to know.

Oil Production Reporting
In the oil business’s absolute simplest form, there would only be one party involved: the landowner would also be the oil producer, with no other owners or investors. While this may be the dream of many, it is not normally the case. An oil company does not typically own the land it works. Instead, it leases the land from other parties. There are often multiple levels of investors and stockholders, with each group entitled to royalties from the oil produced.

This renders the accounting side of oil production a complicated web. Governing bodies (as part of the state) oversee production levels and accounting to ensure that everyone who should be earning royalty payments actually receives them. In Dallas (and the rest of the state) this body is the Texas General Land Office.

When multiple parties are involved, royalty payments become rather complicated. Varying leases require different payments, and the Texas General Land Office regulates both major lease forms:

* Unitized Leases – In a unitized lease, everyone involved in the lease works together. The group markets the product, with each person taking a share of the profits. This is usually the case with shareholders or investors.

* Non-Unitized Leases – These are slightly more complicated, as different groups of owners and operators are able to market the products of the lease independently. Each group’s percentage of the royalty payments is based on the portion of the business that they own or operate.

Reporting to the Texas General Land Office
In order for the Land Office to account for all the royalty payments that must be made, oil companies must prepare monthly reports. Although these are often complicated documents requiring a skilled preparation team, the information remains the same every month. Companies must report the current month’s production (organised into product groups unless otherwise approved by the Office), revisions to the prior month’s production, and any supplementary information required to remain transparent. There are no minimum production requirements, meaning that even if you have produced only a litre of oil you must still report it to the Office.

Companies must adhere to strict deadlines or risk penalties. Oil companies must deliver their reports and the accompanying royalty payments on or before the fifth day of the second month after production. For example, a company filing a report for January production must submit the report by March fifth. The Texas General Land Office also handles natural gas reporting. Natural gas companies are responsible for the same reports as oil companies, although their deadline is the fifteenth of the month.

Easier Reporting and Payment Methods
The actors on the new Dallas may have all the bells and whistles commensurate with the times, but the original cast would have had to deal with their reports, payments, and deadlines with pen and paper – and many trips to the bank. Today, the Texas General Land Office has made the process easier by incorporating the internet and its own intranet.

TEXNET is a royalty payment system that allows tracking of royalty payments to the parties involved. This platform also enables online reporting to the Office. It not only makes reporting significantly easier, but also ensures that reports are filed on time. Because everything is done instantaneously, the Office can immediately return up-to-date information about submissions. Oil companies now know in minutes whether they have correctly submitted their information and payments, or if there are any discrepancies in their reports. This is essential because the oil company can receive severe penalties if a report or royalty payment is incorrect.

The folks featured in the original Dallas series would not have had TEXNET or other modern conveniences, but they would still have needed to report to the Texas General Land Office, and they would have spent a great deal more time and many more resources doing so. It makes you wonder how they had any time for scandal at all.

Although the Texas General Land Office may seem to many like an unnecessary administrative burden, that is hardly the case. The Office ensures that royalty payments are disbursed correctly and keeps the oil companies operating within the law. The Office also offers training to relevant company representatives so they are equipped to file reports online and to comply with the legal aspects of the business.

The Texas General Land Office has certainly made things easier for oil companies these days, but oil royalty payments remain an intricate procedure. If you want to get into the game, it is best to stay aboveboard and leave the scandals to the TV shows. After all, fines and prison sentences are not as easy (or quick) to deal with as they are on television (and no one really wants that kind of personal drama for themselves).





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