Accounting Procedures

1
Accounting Procedures

• Attached to and a part of the JOA
• Addresses issues related to the joint account
• Two ways the operator may book amounts for
  jointly-owned property
• Charge directly to joint interest owners A/R
• Charge all costs on books of Operator then charge
  to joint interest owners

2
AP Revised in 2005

• The most recent Accounting Procedure was approved
  by COPAS in April 2005
• Since the AP is attached to and part of the JOA,
  it is a part of a contract between operator and
  Non-operators.
• Unless all parties agree to change to a newer AP,
  the one in the JOA will control. That is, many
  exiting JOAs may use pre-2005 APs.

3
AP Article 1 General Provisions

• Defines key terms used in the Accounting
  Procedure including
• Joint Account Account showing charges and
  credit in Joint Operations as shared by parties
  to the agreement
• 1st Level Supervisors - Employees whose primary
  function in joint operations is the direct
  supervision of other employees employed on the
  jointly owned property in a field operating
  capacity.
• Technical services Services providing specific
  engineering, geoscience, or professional skills
  required to handle specific operating conditions
  and problems for the benefit of joint operations.

4
AP Article 1 Statements and Billings

• Operator to provide monthly statement to
  Non-operators
• On or before last day of the month for previous
  month activity
• Identify AFE, lease, and all charges and credits
  summarized by appropriate classification

5
AP Article 1 Advances and Payments by
Non-Operators

• Allows for cash calls by operator for prepayment
  of bills (often used in international operations)
• Bills are due within 15 days or they are subject
  to interest

6
AP Article 1 Adjustments Joint Interest Audits

• Bills are deemed to be correct after 24 months
  following the calendar year of the charges
• Non-Operator may notify operator that it intends
  to audit joint account
• Non-Operators may audit the joint account within
  24 months after the close of the year
• Should issue report within 90 days after
  completion of the audit.

7
Joint Interest Audits

• Generally, the audit looks for discrepancies in
  direct charges (labor and materials) and overhead
  charges
• If revenue is distributed by operator, this may
  also be an item of interest
• Operator should reply to audit report within 180
  days

8
2005 AP Changes

• Audits of payout account allowed
• Includes hydrocarbons proceeds pertaining to
  payout account
• Time limit current year 2 from date payout
  statement rendered
• Audit period extended if statement not rendered

9
Audits

• Deadlines for responses rebuttals
• Enforcement
• If Operator misses deadline, statute of
  limitations defense waived
• If Non-operator misses deadline, statute of
  limitations waiver lapses
• Audit resolution meeting
• If dispute cannot be resolved, the dispute is
  submitted to mediation with both parties sharing
  the cost equally.

10
Optional Treatment Regarding Audits

• Optional Provision
• If operator doesnt respond for 1 year,
  unresolved exceptions deemed granted
• If non operator doesnt respond for 1 year,
  unresolved exceptions deemed withdrawn

11
AP Article 2 Direct Charges - Labor

• Salaries and labor
• of operators field employees directly employed
  on the property
• first level supervisors in the field
• technical employees directly employed on the
  joint property
• Operators cost of holiday, vacation, sickness,
  and disability benefits
• Employee benefits Usually stated as a percentage
  (say, 40) of labor costs and covers medical and
  dental insurance, life insurance, disability
  insurance, pensions, tuition assistance.

12
AP Article 2 Direct Charges Materials
Services

• Expenditures made for materials and services on
  the joint property
• Example of services
• Licenses and permits
• Wages and related costs
• Exploratory drilling
• Development drilling
• Installation of production equipment
• Operating expenses (lifting costs)

13
Accounting Procedures Direct Charges Some
Issues

• First level supervisors
• Technical employees
• Ecological and environmental costs
• Materials and supplies net of discounts if used
  for joint operations See Problem 9
• Damages and losses losses by casualty or theft
• Insurance

14
Problem 9

• List 60,000, Terms, 10 off, 2/10, n/30, Loading
  and hauling are 4,000
• 60,000 X 90 X 98 52,920
• Add Hauling 56,920
• A/R nonops 34,152
• W/P LWE casing 21,168
• W/P LWE freight 1,600
• A/P 56,920

15
Problem 9 contd

• W/P LWE casing 52,920
• W/P LWE freight 4,000
• A/P 56,920
• A/R nonops 34,152
• W/P LWE casing 31,752
• W/P LWE freight 2,400

16
AP Article 3 - Overhead

• Overhead costs of clerical, administrative,
  engineering, accounting, home office, and other
  costs not allowed as direct charges
• Rates determined through negotiation and usually
  adjusted annually (every April 1 after effective
  date of agreement)
• OH rates adjusted by percent published by COPAS

17
Methods for overhead

• Fixed amount
• Producing rate per well charged if producing at
  any time during the month
• Drilling rate per well determined by pro rata
  time well in progress during month
• Construction rate usually a sliding scale while
  major project underway (now combined with
  catastrophic rate)
• Percentage of direct costs (often used in
  international operations)

18
Problem 7(a)

• Per JOA, overhead of
• 1,000 per producing well
• 10,000 per drilling well
• 4 wells produced every day for the previous month
• 4 X 1,000 4,000

19
Problem 7(b)

• Per JOA, overhead of
• 1,000 per producing well
• 10,000 per drilling well
• 3 wells produced every day for the previous month
  and 1 well produced 5 days
• 4 X 1,000 4,000

20
Problem 7(c)

• Per JOA, overhead of
• 1,000 per producing well
• 10,000 per drilling well
• Drilling on first day of the month, then
  suspended for 4 days, then resumed drilling
• 1 X 26/30 X 10,000 8,667