How to Read a Revenue Statement

Understanding your royalty payments from oil and gas production is vital in order to ensure accurate, timely, and complete issuance of all production revenue to which you are entitled as a royalty owner. The most critical piece of information available to royalty owners for review and validation of their payments is the revenue statement.

What Is A Revenue Statement?

Revenue statements are typically received along with the royalty checks issued to royalty owners each month, and the data they contain is required by law to be issued to you as a royalty owner.

The checks and associated revenue statements are sent to you by the purchaser of the oil, gas, or other hydrocarbons being produced from the wells associated with your royalty. Although the purchaser is very commonly the same as the operator of the wells drilled on your acreage, this isn’t always the case, as operators can make arrangements for a different company to purchase all of the produced commodities from the wells, in which case the company purchasing the hydrocarbons would be referred to only as the “purchaser” and would have the responsibility of producing and issuing checks and revenue statements for all purchased hydrocarbons. Note that, in some cases, an operator may contract with a different purchaser for each the oil and natural gas production from your wells, in which case multiple checks and revenue statements will be received each month, one for each production type.

The revenue statements you receive contain a breakdown of how your payment is calculated, detailing production volumes, commodity prices, deductions and other factors. The statements can seem complex at first glance, but they’re actually quite simple once you understand a few common, key components.

Key Components of a Revenue Statement

Each revenue statement typically includes the following components:

1. Operator Information & Payee Details

At the top of your revenue statement, you will find details about the operator or purchaser issuing the payment. This section usually includes:

• Purchaser’s name and contact information
• Your owner number or account number (used for internal tracking at the purchaser)
• The check date and check number

Errors in ownership details can cause payment delays or misallocation, so it’s critical to ensure that all of this information is correct upon receipt of your first payment.

2. Well and Lease Information

Each revenue statement includes specific information about the well(s) or lease(s) generating your royalties. This section contains:

• Lease or well name
• API number (a unique identifier for each oil and gas well)
• County and state of production
• Type of interest held, such as Royalty Interest (RI) or Working Interest (WI)
• Interest percentage (often referred to as the “Decimal Interest”)

If you own interests in multiple wells, your revenue statement will list each one separately.

3. Production Volume and Sales Data

This section of the statement tells you about the amount of oil, natural gas, or other hydrocarbons produced and sold during a specific time period. It includes:

• Production Date: The month and year when production occurred
• Product Code: Indicates whether the product is oil, gas, natural gas liquids (NGLs), or some other hydrocarbon product
• Volume Sold: The quantity sold, typically measured in barrels (Bbl) for oil and thousand cubic feet (Mcf) for natural gas, with varying units of measurement for other product types
• Price Per Unit: The sales price received per unit of production (typically per Bbl for oil and per MCF for natural gas)
• Gross Revenue: The total sales revenue before deductions

Because production and sales are reported monthly, payments are typically received 1-2 months after the production actually occurs.

4. Deductions and Expenses

One of the most scrutinized sections of a revenue statement is the deductions, which account for post-production costs. These may include:

• Transportation Costs: Fees for moving the product via pipeline, truck, or rail
• Processing Fees: Costs associated with refining or treating the product
• Marketing Costs: Expenses for selling the hydrocarbons
• Severance Taxes: State-imposed taxes on resource extraction

Not all royalty owners are subject to post-production deductions—this depends on your oil & gas lease (OGL) terms. It is critical to review the deductions reported on your revenue statement versus the deductions agreed to on your OGL to ensure that the purchaser is not deducting disallowed costs from your revenue share.

5. Net Revenue and Payment Amount

After all calculations and deductions, the final section of your revenue statement shows:

• Net Revenue: The amount due to you after deductions and taxes
• Check Amount: The actual payment issued, typically visible at the bottom of the revenue statement and on the check itself
• Year-to-Date Totals: A summary of earnings and deductions for the year, typically shown at the bottom of the revenue statement

If your revenue statement shows a negative balance, that means that deductions exceeded revenue, which may result in no payment for that period. This is a very rare occurrence for a standard royalty interest (RI) owner, so this should be reviewed extremely carefully if it does occur.

Common Issues and Red Flags

While most revenue statements are accurate, errors can occur. Here are some common issues to watch for:

• Volume Discrepancies: Ensure production volumes match publicly available data from state oil and gas regulatory agencies. In Texas, for example, the Texas Railroad Commission (RRC) aggregates production data from all wells in the state, as reported by operators. The RRC performs audits randomly to ensure that operators are reporting accurately, so the data at the RRC can generally be considered accurate and verified. This data can be a useful cross-reference against revenue statements.
• Incorrect Pricing: Verify commodity prices align with market rates for the production period. In the case of large discrepancies, an inquiry should be made with the operator or purchaser of your hydrocarbons as to their substantiation for the pricing being used.
• Disallowed Deductions: Review post-production charges to ensure they comply with your oil & gas lease (OGL) agreement.
• Interest Percentage Errors: If your ownership interest is incorrect in the records of the purchaser, your payments are very likely also miscalculated.

Best Practices for Managing Your Revenue Statements

• Keep Records: Maintain a file of all revenue statements for tax and audit purposes, as well as for general future reference in case payment discrepancies are identified at a future date.
• Use Accounting Software: If your royalty interest holdings are substantial, consider tracking your royalties with specialized accounting software to analyze trends and ensure that the 1099s received each year from purchasers are reconciling with your royalty deposits. This process can identify checks lost in the mail.
• Ask Questions: If something looks off, contact the operator, purchaser, or another oil & gas professional such as a landman or oil & gas attorney to dig deeper.

Understanding and verifying oil and gas revenue statements is the first critical step to responsible management of mineral and royalty interests.