In a functional allocation program, who is responsible for tangible drilling costs?

In a functional allocation program, the general partner is responsible for tangible drilling costs because this type of program often allocates costs and revenues in a manner that emphasizes the handling and oversight of the drilling operation, which is typically managed by the general partner. The general partner plays a significant role in the management and operation of the drilling project, making decisions regarding the expenditure and use of resources, including tangible drilling costs. These costs often encompass physical assets and direct expenses associated with drilling activities, which the general partner is tasked with managing.

Limited partners typically provide capital and expect a return on their investment but are not involved in the day-to-day operations or the financial decision-making process of the drilling activities. As a result, they do not typically bear the financial responsibility for tangible drilling costs; that responsibility largely falls on the general partner who handles the operational aspects of the drilling program.