Why Upstream Accounting Needs a Modern Path Forward

Upstream accounting has become more complex. Regulatory changes keep coming and contracts grow more creative every year. Processes that once felt manageable now feel stretched thin.

When a new scenario shows up, it usually starts as discovery. Many times the assets have already been sold and the acquirer is reviewing the acquisition data to bring it into their system. That is never straightforward. Teams sift through spreadsheets, allocation setups, contracts and a dozen other data touch points. This is usually the moment a company realizes that things could have been structured differently.

For years, companies focused on their share of the contract. But options like take in kind have changed the landscape. When TIK is involved, the statements you receive no longer show the total volume. They show only your portion.

Now imagine you are a production accountant. Your job is to report one hundred percent gross volumes coming from the lease. That is how you report total production for your wells. But your statement shows ninety eight percent. That is not the total volume and reporting less than the full amount is not an option.

So you do what production accountants have done for years. You open a spreadsheet and do the math to bring the volume back to your total eight eighths. Then you manually create a record to handle the balance. Now imagine doing that across one thousand wells or more. You start to feel the pain. You start to feel the frustration. And you absolutely feel the added weight it brings to your monthly close.

This is where production and revenue begin to wrestle with ownership. Most take in kind scenarios happen downstream of the lease sales point. Production accounting typically ends at those custody transfer meters. They enter the statements from those meters and allocate sales back to each well. But when the process requires the plant statement to drive allocation and that statement is not a total volume, production cannot report those numbers. Revenue needs them though. And they need every detail that comes with it to run their process.

Revenue also deals with fees like compression and marketing. Those need to be allocated to the wells before distribution. That sounds simple until you have a compressor station set up after the lease that burns fuel. That fuel inflates your volumes if you treat it like production. The gas running that compressor may have come from another lease entirely. Revenue needs the record because they need to bill for compression. Production cannot use that record because it distorts their reporting.

Two different processes are being forced into one. And it is easy to understand how that happened. Production already has the setup to allocate correctly to the well level. Revenue does not. Which means production often bears the burden of generating records for revenue at the cost of their process, their accuracy, and their time.

Allocate solves this with a post lease allocation process. It is an additional allocation built for revenue that runs on top of production’s allocation. It gives revenue the flexibility to add midstream fuel, additional volumes, and fees like compression and marketing without altering the production allocation that rightfully ends at the lease.

Need to break out by plant component. You can handle that in post lease allocation. Production does not need components to report gross volumes to the state. Revenue might. Now they can.

The larger point is this. Legacy systems operate in a truth that belonged to decades past. But today’s production and revenue accounting is more complex. It requires more detail, more clarity, and stronger controls if you want scalable processes that grow with your operations.

So ask yourself. What is your current truth. Is your process full of manual adjustments and side spreadsheets just to tie out at month end. Are you carrying extra weight because your system cannot handle the flows you deal with every month. Have you been told this is just how it works so many times that you no longer question it. Have the tools stayed the same for so long that you no longer believe something better is possible.

We have been onsite with production and revenue teams for years. I know the answer is yes. That is why we designed Allocate the way we did. To support the work as it exists today. Not decades ago.

For years, the newer tools in the market have not gone far enough because they never understood production accounting. Vendors assumed that daily route summaries were the answer. They were not. Allocate is a full production accounting solution created by production accountants with deep experience in the process. We have tested complex setups. We invented a process that handles post lease allocation changes with ease, not chaos.

It is a demo worth seeing. And it is a conversation worth having. Let’s build something better together.