A joint interest billing statement arrives monthly, runs several pages, and gets approved in about ninety seconds by most working interest owners. The signature happens faster than the reading.
That habit costs money. Todd Muslow CPA has reviewed these statements from the audit side at KPMG LLP and from inside an operating company as Chief Accounting Officer of O’Brien Resources, LLC. Errors are common, and they are almost never malicious.
What the Statement Actually Is
When several parties own a working interest in a well, one of them operates it. The joint operating agreement gives that operator authority to incur costs and bill the others for their share. The joint interest billing is that bill.
The accounting procedure attached to the operating agreement governs what may be charged and how. It defines direct charges, overhead rates, and the treatment of shared equipment and labor. Most disputes trace back to that exhibit rather than to the statement itself.
So the first rule of reading one is that the statement is not the authority. The agreement is. The statement is a claim made under it.
Start with the Decimal
Every charge on the page is your gross share multiplied by a working interest decimal. If the decimal is wrong, every line is wrong, and the error repeats every month until someone catches it.
Decimals change. Assignments, farmouts, and payout provisions all move them. Todd Muslow CPA suggests confirming the decimal against your own records at least annually rather than assuming the operator’s system caught the last change.
This is the single highest value check on the page and it takes two minutes. Owners skip it because it looks like a header, not a number.
Overhead Is Where the Arguments Live
The accounting procedure allows the operator to charge overhead at fixed rates, usually one rate for drilling and a lower one for producing wells. Those rates escalate on a published index. They also switch when a well moves from drilling status to producing status.
That switch is a frequent error. A well that finished drilling in March should not be carrying drilling overhead in August. Nobody flags it because the number looks the same as last month, which is exactly the problem.
Watch for overhead charged on top of costs that already include an operator markup. Watch for the same supervisor’s time appearing as both a direct charge and a component of overhead. Both happen, and both are recoverable if you find them inside the audit window.
Direct Charges Deserve a Source Document
A line reading equipment rental with a number next to it is not an explanation. You are entitled to the underlying invoice. Todd Muslow CPA notes that owners rarely ask, and operators are generally cooperative when they do.
Look for costs that belong to another well. Multi-well pads make this easy to get wrong, and allocations between them are often estimated rather than measured. Look for costs incurred before the agreement’s effective date.
Look at the timing. Charges appearing months after the work was performed suggest a vendor invoice that sat, which raises the question of what else is sitting.
The Clock Nobody Watches
Operating agreements typically give owners a defined period to audit charges, often two years. After that the charges are final regardless of what an audit would have found. The right expires quietly.
Todd Muslow CPA of Shreveport, Louisiana, is a partner of Muslow+Agnew Group, LLC, serving closely held businesses in corporate taxation, business accounting services, and consulting. He treats the audit window as a calendar item rather than a legal footnote.
Todd Muslow CPA recommends a quarterly sample rather than a monthly full review, which is the version owners will actually do. Pick one statement, pull three charges, and ask for the invoices behind them. What you learn about the operator’s process applies to every statement you did not read.
Ninety seconds of review buys you nothing. An hour a quarter, against the agreement rather than against last month’s statement, is what finds the money. The statement is the operator’s math, and it deserves the same scrutiny you would give any other number someone else calculated on your behalf.