Close & Compliance

Why Month-End Close Is Especially Complex in Oil & Gas

Closing the books in oil and gas is fundamentally different from most industries. Revenue does not always align cleanly with production timing, ownership changes frequently, and operators must manage joint interest partners, regulatory exposure, and owner trust balances—all at once.

For many companies, month-end close problems show up as:

• Out-of-balance owner distributions
• Suspense accounts that keep growing
• JIB disputes from partners
• Prior period adjustments piling up
• Audit findings that could have been prevented

A disciplined, repeatable close process reduces risk, shortens close time, and builds credibility with both partners and owners.

This checklist outlines a practical workflow used by experienced oil and gas accounting teams.

Oil & Gas Month-End Close Checklist

Use the steps below in sequence. Most companies find the smoothest closes happen when operational data is validated first, followed by financial processing and then compliance review.

1. Validate Production Volumes

Production is the foundation of upstream accounting. If volumes are wrong, everything downstream—revenue, taxes, and distributions—will also be wrong.

Monthly tasks:

• Import or confirm production data from field systems
• Compare current month volumes to prior month
• Investigate significant well-level variances
• Confirm shut-in wells are properly coded
• Verify product splits (oil, gas, NGL)
• Review allocation factors for multi-well facilities

Common issues:

• Missing production months
• Duplicate imports
• Allocation errors
• Late field corrections are not reflected in accounting

Best practice: Establish automated variance thresholds that flag wells outside expected ranges.

2. Record and Reconcile Revenue

Revenue timing and accuracy are frequent problem areas in oil and gas accounting.

Checklist:

• Load purchaser statements
• Verify pricing against contracts or index pricing
• Confirm gross vs. net reporting treatment
• Review marketing and transportation deductions
• Tie revenue volumes back to production
• Identify and post prior period adjustments (PPAs)

Watch closely for:

• Duplicate purchaser loads
• Revenue recorded in the wrong month
• Owner decimal mismatches
• Negative revenue outliers

Control tip: Maintain a revenue variance report by well and by purchaser each month.

3. Post and Review Joint Interest Billing (JIB)

For operators, JIB accuracy directly impacts partner relationships and cash flow.

Monthly workflow:

• Enter all vendor invoices
• Confirm proper well and cost center coding
• Apply overhead according to COPAS guidelines
• Review large or unusual charges
• Verify partner billing percentages
• Generate and review JIB statements

High-risk areas:

• Expenses posted to the wrong well
• Incorrect overhead application
• Duplicate invoices
• Capital vs. expense misclassification

Best practice: Require secondary review on high-dollar AFE charges.

4. Reconcile Suspense Accounts

Suspense is one of the most scrutinized areas in oil and gas accounting. Poor suspense management can create regulatory exposure and owner dissatisfaction.

The monthly review should include:

• Beginning balance tie-out
• New funds were placed into suspense
• Releases processed during the month
• Aging by owner and by reason code
• State compliance review
• Interest accrual where required

Red flags:

• Funds held without a documented reason
• Very old suspense balances
• Missing owner follow-up activity
• Negative suspense balances

Operational tip: Assign ownership of suspense follow-up to a specific team member.

5. Review Division Orders and Owner Master Data

Ownership errors are one of the fastest ways to create distribution problems.

Monthly controls:

• Enter newly received division orders
• Review ownership changes
• Run decimal balance reports (should equal 100%)
• Check for duplicate owner records
• Verify tax IDs are present
• Confirm pay status codes (pay, hold, suspense)

Common problems:

• Decimal rounding issues
• Ownership is not updated timely manner
• Owners paid before documentation is complete
• Incorrect tax withholding setup

Best practice: Run an ownership exception report before every distribution.

6. Calculate and Validate Owner Distributions

Before payments are issued, perform a structured validation process.

Required steps:

• Run preliminary distribution
• Review owners with negative revenue
• Apply minimum check thresholds
• Validate state and federal withholding
• Review large payment variances
• Confirm ACH vs. check settings

Major risks:

• Overpayments due to decimal errors
• Missing withholding
• Paying owners are still in suspense
• Negative checks were created unintentionally

Control tip: Always review a “top payments” report before finalizing.

7. Perform Bank Reconciliations

Cash reconciliation should never be deferred. In oil and gas, multiple bank accounts are common, including owner trust accounts.

Monthly bank rec tasks:

• Reconcile operating accounts
• Reconcile owner trust accounts
• Investigate outstanding checks
• Review deposits in transit
• Clear stale reconciling items
• Tie reconciled balances to the general ledger

Best practice: Keep owner funds segregated from operating cash.

Warning sign: Reconciling items older than 90 days.

8. Review Tax and Regulatory Liabilities

Oil and gas companies often operate across multiple states, each with its own tax requirements.

Monthly review:

• Severance tax accruals
• State withholding payable
• Production taxes
• Regulatory and conservation fees
• Federal backup withholding
• Year-to-date 1099 accumulations

Common issue: Severance taxes not tied properly to production volumes.

Best practice: Maintain a tax reconciliation schedule by state.

9. Perform General Ledger Review and Variance Analysis

Before closing the period, conduct a financial reasonableness review.

Controller review should include:

• Month-over-month income statement comparison
• Balance sheet fluctuation review
• Negative balance scan
• LOE trend analysis by well
• Overhead reasonableness check
• Intercompany reconciliation
• Retained earnings tie-out

Helpful reports:

• Trial balance
• Income statement by property
• LOE per BOE trend
• Revenue variance report

10. Lock the Period and Document the Close

Once all reconciliations are complete:

Final steps:

• Post any remaining accruals
• Confirm all subledgers tie to the GL
• Lock the accounting period
• Archive supporting reports
• Update the close checklist
• Document any unusual items

Best practice: Maintain a formal close binder (digital is fine).

Common Month-End Close Pitfalls in Oil & Gas

Even experienced teams run into recurring issues. The most common include:

• Rushing distributions before ownership is verified
• Letting the suspense balance age too long
• Not reconciling production to revenue
• Weak review of JIB coding
• Ignoring small variances that grow over time
• Manual spreadsheets driving key processes

Companies that standardize their close process typically reduce close time by 20–40% while also lowering audit risk.

How Automation Improves the Close Process

Modern oil and gas accounting systems can streamline many steps above by:

• Flagging production variances automatically
• Preventing duplicate purchaser loads
• Monitoring decimal imbalances
• Automating suspense aging
• Generating distribution exception reports
• Accelerating bank reconciliations

The goal is not just speed—it is repeatable accuracy.

Download the Month-End Close Checklist

To make this process easier to implement, create a downloadable month-end close checklist your team can use each period.

Your checklist should include:

• Step-by-step task list
• Responsibility assignments
• Sign-off fields
• Key control reports
• Close timeline targets

Offering this as a downloadable resource is also an effective way to help accounting teams standardize their process while identifying where automation can reduce risk.

Final Thoughts

Month-end close in oil and gas will always involve complexity, but it should not feel unpredictable or chaotic. Companies that implement a structured close checklist gain:

• Faster closes
• Fewer owner issues
• Cleaner audits
• Better partner relationships
• Stronger financial visibility

Consistency—not heroics—is what separates high-performing accounting teams from the rest.