Oil & gas accounting explained in plain English — working vs. royalty interests, JIBs, revenue statements, deducts, severance tax, LOE, AFEs, and well-level books.
Most explanations of oil and gas accounting are written for accountants. This one isn’t. If you just inherited mineral interests, bought into your first well, or took over the books at a small operator, here’s everything the textbooks bury in jargon — the ownership types, the documents, and the numbers — explained the way someone would actually say it out loud.
The core idea behind all of it: a well is a small business with many owners. Oil and gas accounting exists to split that business’s costs and income fairly among everyone who owns a piece — and to keep a record of it well by well, because every well has different owners in different percentages.
A well is a small business with many owners. The accounting exists to split the costs and the income fairly — well by well.
A working interest owner shares in the costs of drilling and operating the well and, in return, shares in the revenue. If you own a 25% working interest, you pay roughly 25% of the bills. Working interests come in two flavors: operated (you run the well) and non-operated (someone else runs it and bills you for your share).
Royalty owners — usually the mineral owners who leased their land — get a share of revenue off the top and pay none of the drilling or operating costs. They still see deductions on their checks for things like post-production costs and taxes, depending on the lease.
Same economics as a royalty — revenue share, no cost share — but it’s carved from the lease rather than the minerals, and it expires when the lease does. Common for landmen and geologists who were paid in a slice of the deal.
Your working interest tells you what share of costs you pay; your NRI tells you what share of revenue you receive after the royalty owners take their cut. A 25% WI might carry roughly a 20% NRI. The gap between those two numbers is why a well can feel more expensive than it looks on paper.
The joint interest billing is the operator’s invoice to each working interest owner for their share of the month’s costs — pumper time, water hauling, repairs, overhead. Every operator formats it differently, and the line items use industry shorthand. Decoding JIBs is half the job of oil & gas bookkeeping.
When production sells, the check comes with a statement showing volumes, prices, and a stack of deductions — severance tax, gathering, processing, transportation. These “deducts” are why the check never matches barrels times price, and they deserve a line-by-line read every month.
Before drilling or major work, the operator sends an authorization for expenditure: the estimated cost and your share of it. Signing it commits you to pay. Good books track actual JIB charges against the AFE, so you know when a project runs over.
The day-to-day cost of keeping a well producing — labor, chemicals, power, water disposal, repairs. Watching LOE per well over time is the single most useful habit in oil & gas bookkeeping: it tells you which wells earn their keep and which are quietly eating the profits of the others.
A state tax on production, taken out before the revenue check reaches you. Rates vary by state and by product, which is one reason two similar wells in different states can pay very differently.
Shorthand for post-production deductions — gathering, compression, processing, transportation, marketing. They’re negotiated into leases and contracts, they vary by purchaser, and errors in them are common enough that checking deducts against your agreements is worth the effort.
The two accounting methods for capitalizing drilling costs. Under successful efforts, dry holes are expensed immediately; under full cost, all drilling costs — hits and misses — go into one capitalized pool. For a small operator the practical takeaway is simple: pick one, apply it consistently, and make sure your tax preparer knows which one your books use.
The habit that makes everything above useful. Every dollar in and out gets tagged to a specific well (and often a cost category within the well), so you can answer the only question that matters: is this well making me money? Books that lump everything into one bucket are technically books — but they can’t answer that.
Want to go deeper? If you own non-operated interests, our guide to non-op working interest bookkeeping covers exactly what your books should track. And if the monthly JIB-and-revenue grind is the pain point, here’s how JIB and revenue statement handling gets automated.
Joltly is an AI-powered bookkeeping service for oil and gas. We read every JIB, revenue statement, and invoice line by line and keep clean, well-level books in the accounting system you already use — so the terms in this guide become numbers you can actually see. Start with a free books assessment on your own documents.
Once the basics click, our complete guide to oil and gas bookkeeping shows how the whole monthly process fits together.
Get quick answers to common queries in our FAQs.
You only pay for what you use — no seat fees and no modules you don't need. Pricing is a monthly platform fee plus usage on documents processed, ACH payments, mailed checks, and the workflows you turn on. We size it to your actual monthly close so it scales with the work, not your headcount.
A smaller operator running 25 documents, 10 ACH payments, and 2 mailed checks a month would be priced on that exact volume. A larger operator at 100 documents, 50 ACH payments, and 10 checks pays predictably more. You always know what you're spending because it tracks the actual close.
Joltly connects directly to QuickBooks and Quorum On-Demand Accounting, and supports file-based export workflows for systems like PakEnergy and Integra. It manages accounts, items, vendors, partner mappings, JIB clearing, revenue liabilities, and netting accounts inside your existing setup.
Both sides of settlement. On expenses: invoice review, GL coding, approvals, JIB creation, ACH and check payments. On revenue: statement OCR, partner distributions, remittance emails, and netting between JIB receivables and revenue payouts — so your team replaces spreadsheet work and email follow-up during close.
Yes. Your wells, partners, revenue interests, GL mappings, approval flow, export formats, and partner-facing statements are configured per operator. Most customers go live on their existing chart of accounts and ERP setup — no rebuild required.
Faster than most teams expect. Your AP workflow can be live in less than a week — and you don't need to change your current accounting system. Revenue typically takes about two weeks. The only thing we need from you is a sample revenue statement so we can train the AI on your format.
We set up a Microsoft Teams channel or email channel for your team — whichever you prefer. You'll also get the founders' phone numbers for text messaging when you need a fast answer.
