Production and Marketing Allocation 101: From the Field to Financials

Let’s talk about how production really turns into revenue.

If you are new to oil and gas accounting or just need a refresher, this will help. We will walk through how volumes move from the field to your financials in plain language, the same flow production accountants and field operators manage every day.

1. It All Starts at the Wellhead

Everything begins where the oil, gas, and water come up. Field operators capture daily volumes, downtime, tank switches, and test results right at the source.

Those raw numbers are the heartbeat of the whole process.

• Well tests shape allocation models.

• Field notes explain volume swings.

• Facility flows start to blend wells together.

2. Commingling and Facility Flow

Most wells do not live in isolation. They share equipment such as separators, tanks, and pipelines. That is where commingling happens, and where it becomes impossible to measure each well’s exact contribution.

Allocation rules step in here. They break down total system volumes into well-level details using things like test ratios, fixed percentages, or metered splits.

A strong allocation model prevents imbalance issues and delays later in the process.

3. Ownership Matters

Once production is allocated by well, it is time to figure out who owns what. Working interest and royalty data drive this step.

Ownership is not just about who drilled the well. It involves lease terms, units or participating areas, and Division of Interest (DOI) setups.

When DOI data is right, everyone gets their fair share. When it is wrong, rework begins.

4. Take-In-Kind and Marketing

Here is where marketing adds another layer. Not every producer sells together. Some owners take and sell their share directly. This is called Take-In-Kind, or TIK.

TIK setups affect how sales match to volumes, how prices are applied, and how deductions and marketing fees flow through.

If this setup is not aligned, revenue accounting can quickly become messy.

5. Revenue and Reporting

This is where the numbers meet the money. Once sales volumes and prices are confirmed, accountants match dollars back to volumes. That includes:

• Applying pricing to allocated volumes

• Deducting transport, processing, and marketing costs

• Allocating net revenue by owner and contract

This is the final stop where physical production becomes booked revenue.

Final Thoughts

Production and marketing allocation is not just about math. It is about trust. Trust in your data, your systems, and your process from field to finance.

If you are still managing this through spreadsheets or disconnected systems, you are not alone. Many teams start there. But there is a better way.

Allocate by Prod Logic connects the operational side of allocation, from field data through production and marketing splits, so your accounting team has cleaner and more reliable data to work with downstream.

Curious what that could look like for your team? Let’s talk about it.