EquityMetrix, LLC

Outdated Industry Practices

Revenue settlement procedures were devised nearly one hundred years ago -- when the industry was young, and operators had complete knowledge of production, prices, and the rights and obligations of each owner.

Now, deregulation and high asset turnover have fragmented the industry and entangled the process. 

Revenue settlement procedures have struggled to keep pace.  Leases are lost, volumes are incorrectly allocated, divisions of interest are partially accounted for, taxes are incorrectly withheld, prices are incorrectly applied, regulatory reports are misfiled... and the list goes on.

The most serious impacts can be found with non-operated working interests and other forms of passive ownership:

Errors and Underpayments

Most large working interests now market their own interest. Sales are spread across an array of deals and prices.  Delivery system complexity, actual volumes produced, and the rights and obligations of many owners must be understood by more than just the operator. 

Miscommunication is inevitable, resulting in high error rates, underpayments and lawsuits.  In our practice, we find that 50% of all transactions are corrections, as shown on the left.  We commonly find underpayments that average 1%-5% of amounts due.

Late Payments

Because of this complexity, revenue distributions are usually paid in full past their due dates.  We frequently find properties with as much as 20% of the value for any production month unpaid after 60 days, as illustrated on the left. 

Interest is often due on these late payments, but is seldom paid without a formal demand.