Navigating the Complexities of Owner Suspense Accounts in Oil & Gas Accounting Software

The oil and gas industry is known for its complex financial landscape, where intricate accounting practices are essential to ensure accurate financial reporting and compliance. One of the most challenging aspects of oil and gas accounting is the management of owner suspense accounts. These accounts play a critical role in handling the revenues and expenses associated with oil and gas operations, yet they can be a source of significant confusion and errors if not managed properly.

In this blog, we'll delve into the complexities of owner suspense accounts and how specialized oil and gas accounting software can simplify their management.

What Are Owner Suspense Accounts?

Owner suspense accounts are temporary holding accounts used to manage payments and revenues that are not immediately distributable to interest owners. These accounts come into play when there are uncertainties or discrepancies regarding the ownership interests, payment amounts, or other critical details.

Common reasons for funds being placed in suspense include:

• Title Issues: When there are unresolved issues related to the ownership of mineral rights.
• Ownership Changes: Changes in ownership due to sales, inheritance, or other transfers.
• Discrepancies: Differences in reported production volumes, prices, or other critical data points.
• Compliance Matters: Regulatory or contractual compliance requirements that need to be met before funds can be released.

The Challenges of Managing Owner Suspense Accounts

Managing owner suspense accounts involves several challenges, primarily due to the complexity and volume of transactions in the oil and gas sector.

Here are some of the key challenges:

1. Data Accuracy: Ensuring the accuracy of data related to ownership, production volumes, and revenues is crucial. Inaccuracies can lead to incorrect payments and financial discrepancies.
2. Regulatory Compliance: The oil and gas industry is heavily regulated, with stringent requirements for financial reporting and compliance. Managing suspense accounts in line with these regulations can be daunting.
3. Timely Resolution: Resolving the issues that lead to funds being placed in suspense can be time-consuming. Delays in resolution can lead to dissatisfaction among interest owners and potential legal issues.
4. Complex Calculations: Calculating the correct amounts to be held in suspense and subsequently distributed requires sophisticated accounting methods and tools.
5. Communication: Keeping all stakeholders informed about the status of their funds and any issues that need resolution is vital for maintaining trust and transparency.
6. Taxes and 1099s: Properly managing the tax implications and reporting requirements, including the issuance of 1099 forms to interest owners, adds another layer of complexity. Ensuring that all taxable income is accurately reported and that 1099s are issued in compliance with IRS regulations is crucial to avoid penalties and maintain compliance.

How Pivoten's Accounting Manager Simplifies Suspense Account Management

Pivoten's Accounting Manager is designed to address the unique challenges of the oil & gas industry, including the management of owner suspense accounts. There are a number of scenarios that can cause suspense entries to be created within the software.

Let's review them below and provide more information about each scenario.

For the purposes of these descriptions, the word "suspense" refers to any owner's money held by the operator and not paid to them, or whenever an owner goes into deficit because their share of expenses have exceeded the amount of revenue that they have earned in a given period.

Types of Suspense

The following items are the types of suspense that the software creates during normal processing. Depending on how owners and their interests are set up, some of these may not be applicable in all situations.

Minimum Suspense: A global check amount is defined on the Edit> Preferences window, on the Check Printing window. All owners are subject to that minimum unless an amount is specified for them on the Owner Information window on the Codes tab. When an owner's total earnings for a run are below the minimum amount, their money is held until such time as they earn enough money to exceed the set minimum amount.

Deficit Suspense: When an owner's total earnings for a run fall below zero, they are placed into suspense as a deficit. Deficit owners owe the operator money and can either pay off that balance or the operator can cover that deficit for them and apply it against any future revenue earnings.

Disbursement Frequency Suspense: In Pivoten's Accounting Manager™, an owner can be marked to be processed Monthly, Quarterly, Semi-Annually or Annually. A monthly owner gets processed every time a closing is done. The other frequencies get processed according to the Check Date used when closing a run. Quarterly owners will be processed when a closing is done with a date in March, June, September, and December. Semi-Annual owners will be processed when a closing is done with a date in June and December. Annual owners are processed when a closing is done with a date in December. Any other time that a closing is done, any money for those owners will be placed into suspense, waiting to be released when a check date used during a closing matches their payment schedule.

Owner on Hold Suspense: An owner can be set as being "on hold". When an owner is administratively set to this status, any money they earn during a closing for all their interests will be placed into suspense until such time as they are taken off hold.

Interest on Hold Suspense: If just certain interests for an owner should be held but not the entire owner, they can be set as being on hold on the Division of Interests window. Any money earned for just the specified well will be held until such time as the interest is taken off hold.

Suspense Balances, Reporting and 1099s: At any point, various reports can be run that show all outstanding suspense. A report showing all types of suspense can be run, as well as reports for each of the types listed above.

Pivoten's Accounting Manager tracks suspense balances both when they are put into suspense and when they are released from suspense. Since these two pieces of data are stored with all suspense entries, it is possible to run reports and see what was in suspense at any point in the past, even if it is no longer there. This also allows our users to accurately create 1099s for owners, even when there was suspense activity involved during the course of a year. The software is designed to NOT include any money that was in suspense at the end of the year on 1099s. The money in suspense was not actually paid to the owner, so it should not be included in the totals reported on the 1099. Once the money is released from suspense, it will be reported on the 1099 for whatever year it was released into.

All suspense entries contain the full detailed information of the entries that make them up, so when suspense gets released (even after extended periods of being held), reports are able to show detailed information about the past data.

Suspense Transfers: Suspense will transfer from one type of suspense to another type of suspense in certain circumstances. For example, if an owner is under the check minimum on run #1, then is in deficit on run #2, the minimum suspense entry for run #1 will change from a minimum to a deficit suspense entry after run #2 is closed.

Conclusion

Managing owner suspense accounts in the oil and gas industry is undoubtedly complex, but with the right tools and processes, it can be streamlined and made more efficient. Specialized oil and gas accounting software, like Pivoten’s, provides the necessary features to automate data management, ensure regulatory compliance, resolve issues efficiently, maintain transparent communication with stakeholders, and manage tax reporting. By leveraging these advanced solutions, oil and gas companies can navigate the complexities of owner suspense accounts with greater ease and accuracy, ultimately enhancing their financial management and operational efficiency.

If you're interested in learning more about how Pivoten’s oil and gas accounting software can help your company manage owner suspense accounts and other complex financial processes, contact us today for a demo.