Malone Petroleum Consulting



Find Out What Kind of Oil and Gas Operator You're Investing In

The Operator and the Joint Interest Report

The operator is normally requested to: (1) reply in writing to a report within a reasonable period of time (not to exceed six months which is currently recommended by COPAS); (2) furnish in response to a report with the amount of credit allowed on each exception and the month in which the credits will appear; (3) insure the accounting department identifies on joint interest billings and/or statements of the participating Non-Operators the individual credits due, by the report date (or AFE #, etc.) and exception number; (4) provide adequate documentation should any exception be adjusted for an amount other than that presented; (5) provide us and the investing Non-Operators a copy of the Operator's response to the report and a copy of any joint interest billing reflecting credits due to the Non-Operator's - especially to assure the exception results are controlled, summarized, monitored and ultimately resolved for the benefit of both the participating Non-Operators and the Operator. If the Operator fails to copy us, the Non-Operator should be alerted that the Operator may be attempting to circumvent our rebuttal to their reply. Also, it has been shown that we were copied; however, no copy was ever received by us.

It is important for both the Non-Operators and the Operator's representatives to note, some reports receive 100% credits; most will have one or more exceptions denied due to inadequate or incorrect information furnished to us. However, Operator replies to reports, which have most or all credits flagrantly denied, will most likely be unacceptable and should immediately alert the Non-Operators as the Operator's sense of fair play. Some operators will deny some of our report credits, but will later grant them only to those Working Interests who exert pressure. If necessary, the investor should complain to the Operator's highest management level when treated unfairly by the author of the reply to our report. One of the functions of the report is to obtain refunds for overcharges; however, the primary function of the report is to determine what kind of an Operator you are investing with - past, present and future. Satisfied Non-Operators can and will most likely invest future monies with the Operator. The Operator should, therefore, be as willing to fairly and promptly refund any credits due to the Joint Account.

According to COPAS bulletin No. 3, Expenditure Audits in the Petroleum Industry Protocol and Procedures Guidelines, "Accordingly, non-action by the auditee in excess of one year of report / most recent substantive response should be viewed as acceptance... and appropriate adjustments and/or payments will be expected by the Non-Operators."

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