Energy, Oil & Gas Industry in Unclaimed Property

December 16, 2020

by: Gary Joseph, MBA, CIA, Senior Consulting Manager

Unclaimed property compliance for energy, oil and gas companies can be an especially complex process due to various industry-specific nuances and intricacies. Exclusive property types, such as mineral interest proceeds and royalty payments, title disputes, and operationally-intensive state requirements all contribute to the uniqueness of the industry and its unclaimed property challenges.

As energy companies continue to grow and reorganize through mergers, acquisitions, divestitures, and spin-offs, staying in compliance with state unclaimed property laws (“UP Laws”) has become more and more onerous. Newly formed companies, who inherit historic liabilities as a result of reorganizations, are often abruptly introduced to the aggressive unclaimed property landscape when attempting to comply voluntarily via on-cycle reporting and voluntary disclosure agreements (“VDA”), or involuntarily upon receipt of an unclaimed property audit notice from a State Administrator’s Office.

Energy companies operating in the upstream sector continue to be a focus of state audits, especially for those states that have shale resources. This is mainly due to the multitude of property types maintained by energy companies, as well as the highly contested positions on mineral proceeds and revenue suspense that are common in the oil and gas industry. It’s also important to note that the midstream and downstream sectors are no longer able to fly under the radar, as more and more of these companies have also found themselves on the receiving end of audit notices and VDA notifications.

Current Pay Analysis

One of the reasons why unclaimed property reporting can be difficult for oil and gas companies is the use of “Current Pay” statutes, used by more than 25 jurisdictions.  These state laws mandate that when one mineral interest is presumed abandoned and required to be escheated, any other outstanding mineral interests owed to the same owner are also to be presumed abandoned – regardless of the statutory dormancy period of each individual mineral interest.

Evaluation of Compliance in Oil & Gas

Like many other industries, the energy industry has seen a significant increase in the number of unclaimed property audits conducted by states and their third-party auditors. The increase can be attributed to filing history, failure to report all property types, and recent mergers or acquisitions. Unfortunately, many auditors are not familiar with the nuances of the industry. The absence of industry knowledge among auditors can prove burdensome for target companies, as holders often find themselves educating the auditor on accounting and operational transactions unique to the oil and gas industry. While these transactions may be commonplace for the everyday energy accounting professional, they can seem like a foreign language to auditors.

An example of a pain-point encountered when auditors are not familiar with the industry is presented in the evaluation of Accounts Receivables – Joint Interest Billings (“AR JIB”). While the evaluation of AR Credit Balance dispositions is standard in unclaimed property examinations, AR JIB transactions are unique to the oil and gas industry and should not be tested in the same manner as AR Credit Balance dispositions in other industries (i.e. retail). Attempts to test these distinct credits in a similar manner as traditional credit balances could result in the holder undertaking an arduous effort to pull historical records to prove thousands of transactions were applied to accounts of entities among which there is a joint billing arrangement. Considering there are a number of reasons a JIB credit balance may have been created, the resolution effort can be quite daunting.

Another contested area of oil and gas audits is what should be referred to as the dormancy driver for Mineral Interest properties. More and more companies have expressed concern with auditors flagging the Prior Period Adjustment date as the dormancy driver. As these transactions are often the result of an occurrence or realization outside of the control of the oil and gas company, the reference to certain dates (i.e. production date) could be misinterpreted as the date the item became due and payable. While many state administrators and auditors have deemed the production date to be the most objective, the realization of the net credit balance may not occur until long after the flagged production date – raising an argument that the accounting date should be considered. Again, this is where industry knowledge, and fairness some would say, is paramount as there would be a need to deviate from audit checklists.

Mergers & Acquisitions

There have been a number of high profile mergers, acquisitions, spin-offs, and divestitures over the past few years. Depending on the terms of the agreement, holders can either find themselves relieved of certain unclaimed property liabilities, or inheriting the exposure. There are also instances where agreement terms are not as clear, and holders may have retained liabilities existing as of the effective date of the corporate action.
It is important for holders to understand how unclaimed property liabilities will be handled when there is an organizational structure change. State unclaimed property compliance application may require holders to take into consideration legacy transactions and liabilities. Holders may be liable for properties currently on the books, as well as those that may have been voided, canceled or written off prior to the acquisition.

To determine potential inherited unclaimed property exposure, holders should first take into account the type of acquisition, whether it is an acquisition of all ownership interest, or an asset acquisition. In the event of a stock acquisition, holders are often liable for the acquired entities historical compliance as well as current. Asset acquisitions can prove quite complex, as the terms of the agreement will determine whether or not the company is responsible for historical transactions or not.


Like most things unclaimed property, understanding and filing unclaimed property as an energy or oil and gas company is complicated. Unclaimed property compliance in this sector will continue to present its challenges to the holder community due to its inherently volatile nature. It is imperative that holders continue to monitor changes in the unclaimed property landscape, and take PROACTIVE measures in order to mitigate exposure rather than be REACTIVE in response to an audit notice.

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