oil and gas industry primer - irs (1996)

[...]... in and to all of the oil, gas and other minerals in and under and that may be produced from the following described lands situated in County, State of to-wit: containing acres, more or less, together with the right of ingress and egress at all times for the purpose of mining, drilling exploring, operating and developing said lands for oil, gas, and other minerals, and. .. carrying on geological, geophysical and other exploratory work, including core drilling, the right to enter upon said lands for such purposes without any additional payments, and for the purpose of drilling, mining and operating for, producing, and saving all of the oil, gas, casehead gas, casehead gasoline and all other gases and their respective constituent vapors, and constructing roads, laying pipe...Chapter 1 OIL AND GAS INDUSTRY OVERVIEW The oil and gas industry has been in an economic slump since the mid-1980's There have not been significant domestic explorations that have been successful In 1992, a manufacturer of equipment related to drilling of oil and gas wells said it was closing its doors because the life of its product was 20 years and a new order had not been received... interest and retains a royalty interest, usually between a one-eighth and three-eighths interest After leasing the property and retaining a royalty interest, the landowner takes on a new posture in the field of oil and gas; he or she becomes a "fee royalty owner," as well as the landowner It should be noted that the owner of the land in fee can dispose of all or part of the mineral rights and sell... verify income, expenses, and capital costs on the operated property Further, the operator is responsible for filing state reports in relation to pluggings and abandonments, well completions, etc and will have copies of these reports 1-1 3 Exhibit 1-1 (1 of 3) OIL AND GAS LEASE OKLAHOMA SUIT-IN ROYALTY, POOLING THIS AGREEMENT, made and entered into this _ day of , 19 _, by and between ... years 2 U.S oil production fell to 6.8 million barrels per day in 1993, the lowest since 1958 3 U.S oil imports continue to rise reaching 6.7 million barrels per day last year The Service expended extensive time and resources auditing the oil and gas industry and related businesses in the 1970's and early 1980's With the passage of the Crude Oil Windfall Profit Tax Act of 1980, the Service expanded its... cognizant of financial product transactions when examining oil and gas companies 1-1 GENERAL DESCRIPTION OF THE INDUSTRY Mineral Interests To determine the proper tax treatment of oil and gas transactions, one needs to have a basic understanding of the various mineral interests An operator may acquire the mineral rights in two ways The first, and most common, method is to acquire the right to the minerals... Figure 1-2 below illustrates the difference between adjacent and contiguous areas 1-8 Figure 1-2 A B C 1 A and B are contiguous properties, treated as one property, because they have a common side 2 B and C are adjacent properties, treated as separate properties, because they only touch at a corner They do not have a common side ACCOUNTING METHODS When auditing a taxpayer in the oil and gas industry, ... capitalized and recovered through depreciation Expenses incurred to operate the property would be an allowable ordinary and necessary business expense deduction Figure 1-1 Below is an illustration of the various oil and gas property interests 1-3 O R I G I N A L Landowner Royalty Overriding Royalties and Net Profits Interests W O R K I N G I N T E R E S T Convertible Overriding Royalties Production Payment [Oil. .. minerals, and storing, handling, transporting and marketing the same therefrom with the right to remove from said land all of Grantees property and improvements This sale is made subject to any rights now existing to any lessee or assigns under any valid and subsisting oil and gas lease of record heretofore executed; it being understood and agreed that said Grantee shall have, receive, and enjoy the herein . Issues 2-2 Uniform Capitalization Rules 2-4 Assistance in IRC Section 263A 2-5 General Issues [Non -Oil and Gas] 2-5 Chapter 3, Oil and Gas Audit Techniques Examination of an Oil and Gas Entity and. Method 1-1 1 Accounting Records 1-1 2 Chapter 2, Oil and Gas Industry Issues Issues Related to an Oil and Gas Entity and Activity Overview 2-1 Unproductive Issues 2-1 Productive Issues 2-1 Unique. blank. TABLE OF CONTENTS OIL AND GAS INDUSTRY Index to Exhibits vii Foreword ix Chapter 1, Oil and Gas Industry Overview 1-1 General Description of the Industry 1-2 Mineral Interests 1-2 Acquisition Through