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Accounting Procedures: Contracts or Controversies?

Granville Dutton, Proceedings of 19th Annual Rocky Mountain Mineral Law Institute (1973)

Joint ventures in the energy industry are becoming ever more prevalent as the risks as well as costs of exploration, development, and production continue to sky-rocket. These joint ventures usually involve an area which comprises either a drilling unit or a fieldwide unit and are normally governed by an operating agreement such as the American Association of Petroleum Landmen Form 610 for drilling units and the American Petroleum Institute Model Form of Unit Operating Agreement for fieldwide units. These forms provide for an accounting procedure to be attached to and made a part of the operating agreement. Basically, the accounting procedure prescribes the methods by which the party designated to conduct the joint operation will charge and account for the costs of operating the joint property.

Need for Standardization

The pervasive prevalence of joint operations among the many producers precludes the drafting of individual accounting agreements for each operating contract. Since substantially the same accounting items are present in every joint operation, standard accounting procedures equipped with a small number of options may be easily adapted to cover the bulk of the operating agreements [118] controlling such operations. Through the use of these model forms, the productivity of those industry employees engaged in negotiating and conducting joint operatio