Cost Recovery FAQ

Q: Can the format of the Cost Recovery Schedule (SV 3A)/ Severance Tax Return (SV 3) be modified?
A: Yes, you can modify the format of the Cost Recovery Schedule (SV 3A) and Severance Tax Return (SV 3) reports if needed. This is done under the Utilities menu by choosing Modify Reports, State Compliance Reports, Ohio, and then either the Form SV3 report or Form SV3A report.

Q: How is this handled if it is withheld by another entity?
A: If you are a 3rd party operator or have another situation where the Cost Recovery fee was already deducted by someone else, that fee should be reported on the statement that they send you. Instead of having the software automatically calculate the fee, you will be manually entering it as a deduction at the same time you enter the check that they sent you. You can charge this as the same tax you have setup on the tax table, an Oil Tax 4, or as an expense. It is your preference how you want to charge that.

A well should not have the option marked that the purchaser withholds the oil/gas tax # that you are using on the tax table. A well should also not be marked that the purchaser withholds the direct pay oil/gas taxes either. Both of these options are on the taxes tab of the Well Information screen.

Q: I downloaded the report formats from the link provided but I still can't choose the report from the menu, it is grayed out.
A: The file that is downloaded needs to be unzipped. Run the file and unzip it into your "Rpts" folder. Follow steps 1?7 that are listed below the links that you used to download the file.

Q: The cost recovery fee is already deducted from the check that I receive. How can I keep it from calculating the fee again?
A: You will have to setup another tax table that only has the severance taxes on it. Associate this well with that tax table instead of the tax table that has both the severance tax and the cost recovery fee on it. Refer to the "I need to charge the Cost Recovery fee to only certain wells" and "Cost Recovery was already withheld by another entity" topics above.

Q: Why do the taxes on my closing summary appear higher than what they actually are?
A: The cost recovery fee is using the tax processing that is already built into the software. The tax total showing on the closing summary will include the cost recovery fee that was billed out.

Q: Why is the adjustment a larger amount for only one well on an owner's distribution statement. (I have a dummy owner in the well)
A: If you have a dummy owner in the well, the adjustment that is created will be automatically grossed up so it will appear that the amount is higher. You are still billing the same amount to the well. Since the Dummy owner's portion would be left in limbo, this allows the amount to be charged to the other WI owners in the well. If you do not like that, you can remove the dummy owner's interest in the well for OTAX4 and for the oil/gas class used on the tax table for the cost recovery and assign it to your company. Your company will then be absorbing the dummy owner's portion of the cost.

Q: I have a few wells that aren't producing right now. Should they be excluded from the processing?
A: That is more of a legal question that you should ask the state or your attorney. If you have a well that legally can be excluded from the report then you can follow the same information described above in the "I need to charge the Cost Recovery fee to only certain wells" topic.

Q: How will this affect my 1099s?
A: If you are reporting your 1099s on the Gross amounts then the 1099s will not be affected. If you are reporting your
1099s on the Net then the fee will be deducted from the gross amount just like every other expense and tax is to determine the net amount which is what the 1099 would then be for.

Q: I want to exclude Royalty owners from this fee, how can I do that?
A: This can be another legal question that we are not qualified to answer. We do not know if Royalty owners should be included or excluded in this fee. We assume we will have people argue both ways, so prefer you consult the state or attorney about this.

The fee will be charged to your investors based on their percentage in the oil/gas tax class respective to the one that you have setup on the tax table. If the royalty owners should not be billed for this fee you can remove their interest from
this field and add the WI percentage here for the working interest owners. You will need the then do the same for the
oil tax 4 as that is what is used for an adjustment if one is made.

Q: What production period/date will be put on the adjusting entries?
A: The production period will be 3, 6, 9, or 12 depending on which quarter the adjustment was made for. The date will be the last day of the respective quarter.

Q: I created the adjusting entries but they are not showing up on any reports.
A: This should only be a problem if you created the adjusting entries prior to the actual end of the quarter. For example:
if today is September 29th and you create the adjustment for the 3rd quarter the adjustment will be dated September
30th (the last day of the quarter). The reports default to only show entries dated on or before today's date (September
29th). So you would have to change the date to report as when previewing the report to be September 30th or any day
after that.

You can also look at the Well Revenue by Well screen to see if they were created. This screen shows all entries on the new run so it wouldn't matter if the date matches up or not.

Q: Can the adjusting entries be reversed?
A: Yes, you can choose "Remove Cost Recovery Adjustments" from the Reports menu under the Ohio State Compliance
Reports menu.