February 28, 2024
#Finance #Legal

Accounting Solutions for the Oil and Gas Industry

CPA for Oil and Gas - Stubsondemand

Oil and Gas Industry

The oil and gas industry, a cornerstone of global energy production, involves complex operations from exploration to distribution. Businesses in this sector face unique financial challenges, including balancing capital-intensive projects, regulatory compliance, and market fluctuations.

Accounting Solutions for the Oil and Gas Industry

Accurate and meticulous bookkeeping is crucial for oil and gas companies to manage exploration costs, production expenses, and revenue from energy sales. Given the long investment cycles and complex financial structures, robust accounting systems are essential for tracking capital expenditures and operational costs.

In addition to operational accounting, oil and gas businesses must navigate joint venture accounting, royalty payments, and complex financial instruments. Effective bookkeeping practices help companies maintain transparency and compliance with industry-specific accounting standards.

Tax Planning

Tax planning in the oil and gas industry involves optimizing deductions related to exploration and drilling costs, managing depletion allowances, and navigating tax credits for energy-related investments. Given the global nature of the industry, businesses must also consider international tax implications and treaties.

Strategic tax planning can help oil and gas companies manage their tax liabilities effectively, especially during periods of market volatility. Understanding available incentives and credits is crucial for optimizing the financial position of these businesses.

Taxation Laws in Oklahoma

Sales of gasoline, gasohol, and motor fuel on which the applicable excise taxes have been paid are exempt from the sales tax in Oklahoma. Diesel fuel consumers who primarily deliver fuel into motor vehicle tanks must obtain a Sales Tax Permit and assume liability for state and local taxes on fuel not used on the road. Certain motor fuels used for cleaning, dyeing, illumination, or heating are subject to sales tax. Sales of chemicals and petroleum products used as aircraft fuel are exempt from sales and use taxes. Sales of diesel fuel for commercial watercraft are also exempt. Goods produced in Oklahoma subject to gross production tax provisions are exempt from sales and use taxes, with exceptions for sales to taxable consumers. The exemption for crude petroleum and other oil and gas well products has limitations, excluding lubricants, cleaning agents, fuel for power equipment, and certain petroleum-based chemicals from the exemption.

710:65-13-180. Motor fuel and other petroleum products; taxable and exempt transactions

(a) Exempt sales in general. The sales tax will not be applicable to the gross receipts derived from the sale of gasoline, gasohol, or other motor fuel on which the Oklahoma motor fuel excise tax, gasoline excise tax, or special fuels tax has been paid.

(b) Diesel fuel exemption. Diesel fuel users whose purchases of diesel fuel in bulk quantities are primarily for delivery by them into the fuel supply tanks of motor vehicles in Oklahoma, must apply for a Sales Tax Permit issued by the Oklahoma Tax Commission and assume direct liability for the payment of state and local taxes upon all withdrawals from bulk storage of fuel not used “on-the-road” and therefore not subject to motor fuel or gasoline excise taxes.

(c) Limitations on motor fuels exemption. Sales of motor fuels which are exempt from the motor fuel tax, such as specially prepared naphtha used in established places of business for cleaning and dyeing purposes, and kerosene and any other motor fuel that is used for illuminating or heating purposes are subject to sales tax.

(d) Aircraft fuels. The gross receipts from the sales of all chemicals and petroleum products used as fuel to generate power in aircraft engines are exempt from all state and local sales and use taxes because such sales are subject to the levy of motor fuel excise tax.

(e) Diesel fuel sold for use by commercial watercraft. Sales of diesel fuel sold for consumption by commercial vessels, barges, and other commercial watercraft are exempt from all state and local sales and use taxes. [See: 68 O.S. § 1357(24)]

(f) Crude and other oil and gas well exemptions. Goods produced in Oklahoma that are subject to the gross production tax provisions at 68 O.S. §§1001 et seq. are exempt from sales and use taxes when produced. However, sales of such products which would normally be exempt under 68 O.S. §1355(3) are taxable when made to a taxable consumer/user, except for sales of crude petroleum, diesel, or natural or casing head gas, that are sold solely for the purpose of facilitating the production of oil or gas by injection into the earth.

(g) Limitations on crude petroleum and other oil and gas well products exemption. The exemption for crude petroleum and other oil and gas well products shall not include the application of a lubricant or cleaning agent, i.e. kerosene, to the oil and gas well production machinery. Nor shall it apply to fuel used for producing power for equipment used to drill or produce from an oil or gas well or to sales of petroleum-based chemicals, additives, or other substances used in the drilling of or production from a well. Even though these uses may indirectly facilitate production, they do not come within the purview of the exemption which is limited to crude petroleum, diesel fuel, natural or casinghead gas that is injected into the earth primarily and directly for the purpose of facilitating or promoting the production of oil or gas. [See: 68 O.S. §1355]

[Source: Amended at 15 Ok Reg 2827, eff 6-25-98; Amended at 17 Ok Reg 2677, eff 6-25-00]

Hire a CPA

The complexity of oil and gas operations and the international nature of the industry make the expertise of a Certified Public Accountant (CPA) invaluable. A CPA with experience in the oil and gas sector brings insights into industry-specific tax strategies, financial management, and compliance with regulatory requirements.

CPAs assist oil and gas companies in optimizing their tax positions, ensuring adherence to tax laws, and implementing effective accounting systems. Their role extends beyond traditional accounting, providing strategic financial advice to navigate the challenges of a dynamic and globally influenced market.

Why Choose Epsilon Accounting Solutions, CPA in Edmond, OK?

Epsilon Accounting Solutions understands the intricate financial landscape of the oil and gas industry. With a commitment to personalized service and expertise in energy sector accounting, Epsilon is the trusted partner for businesses seeking financial efficiency and compliance.


Disclaimer: This article does not constitute tax advice. Please consult Ahmed Baqir, CPA at Epsilon Accounting Solutions PLLC, before making any tax-related decisions or taking any actions based on the information provided in this article. Ahmed Baqir, CPA, has the expertise and knowledge to provide personalized advice tailored to your specific financial situation and goals.

Accounting Solutions for the Oil and Gas Industry

Accounting Services for Manufacturers

Leave a comment

Your email address will not be published. Required fields are marked *