Revenue and Royalty Audits
Revenue streams and cash payments are generated from the sale of a product or service, or from the exchange of knowledge or access rights. Distributions are governed by revenue sharing agreements, operating agreements, and lease agreements with unique marketing and commercial terms that may include references to specific indices, allowable deductions, and complex computations.
What is a Revenue Audit?
A revenue audit determines whether or not revenue and royalty distributions were computed as required in the underlying agreements. The examination often requires the auditor to create a model of the measurement / custody transfer points, allocation methods, shrinkage factors, allowed deductions, pricing terms, and other factors so that the derived value due can be compared and contrasted to the revenue payment made.
Candidates for revenue and royalty audits include the following agreements:
- Royalty Leases
- Product Purchase and Sales Agreements
- Gathering and Transportation Agreements
- Net Profits Agreements
- Gas Processing Agreements
- Process Handling Agreements
- Gas Balancing Agreements
- Plant Ownership Agreements
Why Conduct a Revenue or Royalty Audit?
Validating payments is nearly impossible without conducting an audit. Remittance statements are summarized, and the data needed to gain assurance that payments were made correctly are not generally available without conducting an audit. Computations are complex and unique, even when parties own an interest in the same asset.
An audit will assess the appropriateness of and help clients understand:
- Volumes sold
- Product pricing
- Deductions taken
- Taxes paid
- Allocations between plants and leases
- The interdependencies of data and various agreements
- Why the check detail prices differ from index prices
The skills and knowledge needed to conduct an effective revenue audit are acquired over time. AMS-PAR staff have that expertise and are able to analyze the most complex revenue and royalty distribution contracts. Our systems and programming skills facilitate our audit work and allow us to analyze very large datasets.
The largest energy companies, royalty trusts, government agencies, and net profit interest owners entrust AMS-PAR to ensure revenues and royalties are properly allocated and paid. They rely on AMS-PAR’s methodologies to ensure they paid revenues correctly and their interests are protected.
Our report will detail computation errors, provide guidance to facilitate collection efforts, and recommend improvements to business practices and commercial terms to minimize future payment discrepancies.