After a long period of development, the Minerals Management Service issued new regulations on the pricing of oil and gas severed from Federal leases for royalty valuation purposes. These new regulations will have an impact on virtually every producer on Federal lands. Mr. Roach covers these regulations to provide guidance to those concerned with revenue accounting and regulatory compliance.

In response to a court mandate, the Texas Legislature in 2006 revised the Texas franchise tax to extend it to businesses that previously enjoyed liability protection without paying the tax. The revised franchise tax broadened the tax base but lowered the tax rate. Then in 2007, the Legislature fine-tuned the revised franchise tax with the passage of House Bill 3928. This article discusses some of the changes brought about by the revised Texas franchise tax.

The standard deviation of security returns and the sensitivity of security returns to market returns traditionally serve as the cornerstones of risk analysis. The authors analyze the usefulness of the measures in explaining the risk-return behavior of oil and gas firms over the last five years.

In today's natural gas market, physical and financial swing options may be used to hedge against one another. The savvy options trader can often find a very close hedge in the financial markets for the physical instrument he or she is selling. The risks, however, are considerable.

Oil price fluctuation and stock market volatility were closely linked throughout the 1970's, 1980's, and the Gulf War crisis in 1990-1991. This study tests whether investors earned excess returns across bull and bear market conditions by investing in oil stocks. Also examined are abnormal returns and changes in systematic risk across different sub periods and across four major oil shock periods.

Petroleum companies may use interest rate swaps to manage or reduce the sensitivity of earnings to rate fluctuations, but the practice is not without risk. Oil and gas companies should frequently audit risk exposures to assess the efficacy of risk management programs.

This article discusses the sweeping changes in store for companies engaged in the exploration and production of oil and gas as a result of the numerous joint convergence projects of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).

America spends billions of dollars each year on imported energy, and the gap between what America consumes and what it produces continues to widen. Vast oil and gas resources on lands owned by the federal government offer America the opportunity to significantly reduce its dependence on imported oil although political obstacles to development may limit the search for additional oil and gas supplies. Incentives will be needed for those regions to yield significant new discoveries.

This article will briefly discuss corporate agility and will take a look at the approaches of two large companies with significant upstream operations—Royal Dutch Shell and ExxonMobil.

Integration of operations from exploration to marketing generally means greater control and less economic risk. Producers can ensure a more steady market for their product if they are, at least in part, selling to themselves or to a related entity which needs product to refine and market. In turn, refiners can better ensure a steady supply of product if they are involved in exploration and production and a better demand for their product if they are involved in marketing. The concept is simply that each leg of the operation helps support the other and each operation serves as a potential profit center itself. A relatively stable integration can help to facilitate continuous exploration and development of oil and gas properties—which not only benefits oil and gas companies but lessors as well.

The commissioner of the Texas General Land Office may be the A biggest oil baron in the Lone Star state,@ but he=s also the steward of the state=s natural resources. Lawsuits recently filed by the state of Texas could cause far-reaching changes in the way in which oil and gas royalties are calculated and paid.

An unusual aspect of federal leases is the power of the Department of the Interior (DOI) to establish royalty values and make retroactive value determinations. Audit issues include the time period available to the government for the determination of royalties. A problem for both state and federal leases is determining on what production royalty is owed. Also discussed are problems related to entitlements, take-or-pay payments, advance payments, contract buy-downs and buy-outs, reimbursements for production-related costs, tax reimbursements, gas processing rights and imputed proceeds, and valuation issues in non-arm's-length transactions.

Using two cases from the Eighth Circuit Court of Appeals as a starting point, this article addresses the question of what duties are owed by a natural gas producer to royalty owners when the producer receives a settlement in a take-or-pay buy out.

Royalty payment disputes, particularly those involving gas, continue to be a major source of oil and gas litigation. Appellate courts offer little if any consistent guidance in royalty-related issues. Dr. Anderson addresses the question of marketable-product jurisdiction under the terms of typical royalty clauses.

This is the first of two installments which address a number of related royalty issues: the underlying reason for the current wave of royalty litigation, a legal history of the meaning of royalty, and whether lessees must pay royalty on any value added to production by "post-production" activities under the provisions of common gas royalty clauses. The second installment, entitled "Royalty Valuation: Should Courts Contemplate the Forests or Dissect Each Tree?" will appear in the fall/winter issue of the Journal.

Is royalty inherently defined by property law? If modern royalty law is based on how royalty was viewed historically, the actual, historical treatment of royalty is of extreme importance. In the second installment of a two-part article, Dr. Anderson traces the evolution of royalty from British common law to modern-day court interpretations.

Numerous debates are underway world-wide over the relationships between international oil companies and governments. This article relates the saga of the Sakhalin II project, an offshore oil and gas field development in the Sea of Okhotsk off the eastern shore of Sakhalin Island, Russia, and one of the earliest of the Russian production sharing agreements. Ultimately the relationship deteriorated. This is because most of the political pressures brought to bear on this project resulting in a virtual takeover by Gazprom were based on false logic. This problem is not unique to the Sakhalin II situation. Indeed, the Sakhalin II project embodies many of the key issues of the day in the former Soviet Union (FSU).

The authors examine the characteristics of an "S Corporation" and explain the advantages and disadvantages of using this tax entity in oil and gas operations. Special emphasis is placed on those tax aspects that distinguish the S Corporation from partnerships.

Along with many attributes attractive to investors, royalty trusts present several disadvantages, such as their status as self-liquidating entities. This article provides general information about royalty trusts, including their advantages and disadvantages, as well as examining the recently created Santa Fe Energy Trust and the technique it employs in attempting to overcome one of the primary objections to previous royalty trusts.

The Sarbanes-Oxley Act of 2002 has been called the federalization of the accounting industry. Regardless of whether the Act is extended to non-public companies, the Act's requirements will drastically change the accounting industry and many aspects of the financial workings of public companies. Because most of the Act's requirements have recently or will soon become effective, it is anybody's guess how the federalization of the accounting industry will work.

Mr. McClellan points out the need for non operators to audit joint interest revenues in addition to carrying out the traditional audit of costs. He then discusses the initiation and conduct of the audit, time limitations on audits, participation and roles of the parties, access to production facilities and records, action on exceptions, and sharing of audit costs.

On December 29, 2008, the U.S. Securities and Exchange Commission (SEC) adopted a final rule to revise oil and natural gas reserves reporting (Final Rule) requirements. This article discusses Final Rule revisions, changes, and updates to SEC rules.

This article highlights the major changes under the 2008 Securities and Exchange Commission's (SEC) Modernization of Oil and Gas Reporting Rule and the importance of looking at how your company and your peers complied with the rule in year one.

The SEC's December 1982 "Final Rules" adopting. in general, the requirements of FAS 69, are reproduced for the benefit of readers who do not have ready access to the rules.

The SEC has announced new rules to be followed by full cost companies for years ending after December 15, 1983, in computing amortization. The rules permit the general exclusion of all unevaluated costs from immediate amortization. In addition more specific disclosures of the category and age of such excluded costs are required. Because of its importance, the complete text of the release is reproduced.

The SEC has modified its proposed rules for recognition of gain or loss on sales and other transfers of oil and gas producing properties. The proposed rules would generally eliminate income recognition in connection with sales or other conveyances of oil and gas properties. The entire text of the proposed rules is reproduced for the convenience of our readers.

The SEC's proposed amendments of the rules in Regulation SX for full costing are reproduced in their entirety. A brief summary of the rules is first presented.

This article discusses the elements and character of cloud computing, deployment models, scope and control among cloud service models, organization adoption of cloud computing and related security concerns.

With the price of oil moving towards historically high levels and petroleum companies experiencing record profits, many investors are looking for opportunities to invest in oil and gas through syndicated drilling promotions. Such ventures promise investors tax deductions and high income potential, but they come with significant business and tax risks. This article examines the history of turnkey oil and gas drilling promotions and the potential pitfalls investors may encounter in seeking to secure tax deductions for intangible drilling and development costs.

Economic conditions in the last several years led twenty-six full cost companies to petition the SEC for a temporary waiver and rule modification to the full cost ceiling test. The SEC refused to grant the waiver, although the request and accompanying position paper were well supported and documented. The authors explore the economic and theoretical arguments supporting the waiver request and report on current efforts to persuade the SEC to modify the full cost ceiling test.

The entire text of this important SAB is reproduced.

The full text of the SEC's May 1984 release amending the Commission's rules on recognition of gain by full cost companies is reproduced.

Since the adoption of FAS 19 in 1977, technological advances in the siting of oil wells, particularly 3-D and 4-D seismic studies, have drastically reduced the errors inherent in the earlier seismic methods. Today, many people in the oil and gas industry think it may be time to revise the rules and allow the capitalization of geological and geophysical expenses.

The limited liability company (LLC) has surpassed both S corporations and partnerships as the preferred structure under which to operate a business. Over the past few years, one of the most controversial issues regarding LLCs has been whether LLC members are subject to self-employment tax under Section 1401 of the Internal Revenue Code of 1986, as amended, the (Code). Practitioners continue to struggle with this issue, as the tax law remains unclear and Congress has not acted to clarify matters.

In June of 2001 the Financial Accounting Standards Board (FASB) issued two new accounting standards—Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," (FASB 2001) and SFAS No. 142, "Goodwill and Other Intangible Assets" (FASB 2001)—and dramatically changed accounting for business combinations. These new accounting standards will impact accounting for goodwill, and the impact will be greatest for those firms with substantial amounts of goodwill on their books.

This article reviews the 1992 annual reports of oil and gas producers, focusing on the five major categories of supplemental disclosures required by SFAS 69.

This article reviews the SEC's impairment tests and discusses the new SFAS No. 121 and its application to and impact on the oil and gas industry. Included is an example which illustrates the SEC's rules versus the new SFAS requirements.

Unlike other courts of law, the U.S. Tax Court generally places the burden of proof on the accused. An exception to this practice exists incases involving the accumulated earnings tax, wherein the burden of proof shifts to the IRS. The issue frequently hinges on reasonableness of accumulations. The authors analyze two recent Tax Court decisions in which the taxpayer's ability to demonstrate the reasons for accumulations influenced the court's ruling.

U.S. oil and gas companies account for the exploration costs of dry wells differently under FC and SE accounting methods. Some evidence exists that economic decisions, including exploration activities, and accounting choice are intricately linked.

This article reviews the consideration and other benefits to the mineral owner of an oil and gas lease.

This article describes the process one oil and gas company went through in order to safeguard its financial reporting software systems from Year 2000 compliance problems.

Software selections often seem simple at first glance. An organization decides that the current system is not satisfactory and a new one should be purchased. The methodology outlined in this article provides a guide for managers to consistently plan and execute successful software selections.

This article discusses different types of software selection scenarios and offers recommendations on how to make timely yet well thought out decisions for each.

The most important aspect of maintaining consistent financial reporting, in accordance with GAAP, is the ability to explain to operations and/or management not only how but why transactions must be treated in a certain fashion.

Mr. Tristan points out the growth in "spot sales" and direct sales to local distribution companies. He examines certain accounting problems rising from the increase in such sales. These problems are related to gas allocation procedures, revenue valuation, royalty payments, and severance taxes.

Mr. Ridenour examines the most troublesome problems associated with the computation of amortization under the SEC's full-cost rules. These include: (1) exclusion of costs from the full-cost pool, (2) capitalization of interest on excluded assets, and (3) the base for calculation of DD&A.

In this article Mr. Chaffin examines the role that the stage of development of a coal mine should play in determining the proper accounting treatment of costs incurred. He discusses both the theoretical considerations and industry practices. He concludes that a coal company should recognize four stages in the life cycle of a mine-exploration, development, production, and mine closing-and that the stage in the cycle should play a dominant part in accounting decisions.

Provides an FASB standards and SEC rule update potentially impacting companies in the oil and gas industry.

Constantly evolving and increasingly sophisticated oil and gas lease provisions governing state of Texas lands contain some unique wording that requires special analysis to ensure that lessees realize the benefits and avoid the repercussions that may result from non-compliance. The prudent operator must stay abreast of these lease provisions to avoid adverse consequences.

This article addresses the unique aspects of the margin tax as it applies to the oil and gas industry. Some of the topics covered include general and limited partnerships, estates and trusts, affiliated groups, S and C corporations, and unitary business classifications.