Multi-entity consolidation combines the financial results of related companies without counting transactions between them twice. For example, an exploration and production operator records its well costs and production revenue, while an associated midstream company charges the operator for gathering gas. Each company maintains its own books, but the parent company requires a consolidated report.
The fact that ownership is involved makes the report more complicated; for instance, if the operator spends $100,000 on the well and bills the outside working-interest owners $40,000 through joint interest billing (JIB), it has to record the full expense, the amount that the outside owners owe, and its own share of $60,000; revenue is calculated according to the division-of-interest records which the owners receive when they get the product, including the royalty owners and any affiliates with an interest.
The consolidated accounts would include amounts due from or to outside owners but exclude charges between the operator and its affiliates. Otherwise, the gathering fee would appear as revenue for one group company and as an expense for another. Records must link each amount to the well, property, owner, and legal entity so both company-level results and the group total.