Setting Up The Cost Recovery Fee

The following fields will impact the processing of the Cost Recovery Fee.

Well Information:

State: The "State" field on the Well Info tab of the owner information field must be "OH" in order for the Cost
Recovery Fee to be calculated for the well.

Tax Table: If you are allocating the Cost Recovery Fee to the investors in a well, then you will need to have a tax table specified in the "Tax Table" Field for that well.

Status The "Status" field must be filled in with something other than Inactive, Sold, or Plugged. If one of these three statuses is selected, then the well will be excluded from the Cost Recovery Fee processing and reports.

Conflicting Options: A few options on the Well Information screen can conflict with the cost recovery fee processing. Review each of your wells to see if these options are marked. If they are, you need to be aware of how it will handle it.

Purchaser withholds taxes (other than Oil Tax 4). None of the taxes should be marked that the purchaser withholds them except Oil Tax 4. The problem with having these marked, is that the taxes that were withheld from the purchaser will not be included in the formula when the software calculates if and how much of an adjustment needs to be made. This will result in a larger adjustment being created, therefore your investors paying more money than they should have.

Purchaser Withholds Oil Tax 4 - The adjustment that is created at the end of the quarter will use Oil Tax 4. Because of this you will need to have the "Purchaser Withholds Oil Tax 4" option marked.

Neither of the options should be marked about the purchaser withholding direct paid taxes in the well if you have a direct paid owner in the well. This is for the same reason as described above.

The well should not be marked as exempt from the either oil tax 4 or the oil/gas tax calculation that you are using on the tax table for this well to charge the tax recovery fee.

The "Exclude Royalty owners from taxes" option will exclude royalty owners from the taxes/fees calculated when the run is closed but will not exclude the m from the cost recovery adjustment that is being made.
If this option is marked then you will need to make sure that none of the royalty owners have an interest in OTAX4 on the Division of Interest window. Giving only the WI owners an interest in OTAX4 will prevent the RI owners from getting charged the adjustment that is created.

Well Product Tax Tables:
If you are allocating the Cost Recovery Fee to the investors in the well then you will need to add this fee to a tax table. You can add it as the next available tax calculation. The Oil will be " 0.100000" calculated as an "Amount." The Gas will be " 0.005000" calculated as an "Amount." I suggest naming these "Oil Recovery Fee"
and "Gas Recovery Fee" but you can name them anything you want. Make sure that this tax table is selected on the Well Information screen in the "Tax Table" field in order for this to be calculated for the well.

Revenue Categories
If any adjustments need to be made at the end of the quarter because the minimum was not reached, they will be created as an "Oil tax 4." You can change the description for oil tax 4 on the revenue categories screen to be something more meaningful. This could be "Cost Recovery Adj." or anything similar that you prefer. You MUST leave the code as "OTAX4."

Division of Interest

OTax4: Since the adjustments will be allocated to the investors based on oil tax 4, you will need to make sure that the DOI for each well is set up for oil tax 4. If it is already filled in, you are fine. If not, you can use the Copy DOI utility to copy the interest to oil tax 4 from gas revenue or any other class that has the same DOI as you need to use for this.

Tax: You will also want to make sure that the DOI is set up for the tax calculation that you use for the Cost Recovery Fee setup on the tax table.

Preferences

Product Tax 4 Payable: The "Product Tax 4 Payable" account will need to be setup in the Revenue Dist/JIB Posting preferences if you are using the Oil & Gas Accounting Manager or DMIE. This is the account that will be credited when adjustments
are created for the wells because the amount that had been held for the Cost Recovery Fee is less than the required minimum.

Owner Information:

Look at the Options tab. Is the "Owner is exempt from severance/production taxes" option marked for any of your owners? It is preferred that you do not have this option marked. If this option is marked for an owner, be aware that this can impact the cost recovery processing in a negative way. The fee is treated like a tax so the owner would be excluded from the fee. You would then be charging your investors less for the fee than you are paying, which will result in your company paying this owner's portion of the fee. If you do not want your company to pay this owner's portion, then you would have to either make a manual adjustment for this owner on a periodic basis, or change the DOI to give your company this owner's interest or to split his interest proportionately to the other owners in the well.