The oil and gas industry has unique accounting needs. When you evaluate new ERP solutions, how easily the system manages joint venture accounting is going to be an important consideration.
The 5 Pillars of a Joint Venture Accounting system give you the ability to:
1. Comply with IFRS or GAAP Accounting Rules
Whether your organization follows IFRS or GAAP joint venture accounting rules, a sound JVA solution needs to manage different methods of Joint Venture asset accounting; full cost and successful efforts including acquisitions, DD&A, transfers, impairments, and asset retirement obligations.
Joint interest billing should be able to account for and allocate expenses for all stages of the exploration, drilling and production process, based on owner shares. When the exploration is successful, the system should also manage the payout of royalties.
2. Manage Budgeting and Authorizations for Expenditure (AFE)
To control costs and manage investor expectations, budgets have to be created, managed and adhered to. Authorizations for Expenditure (AFEs) ensure proper authorization has been obtained before drilling begins or expenses are incurred. The AFE typically estimates project expenses including the costs of equipment rental, fuel, drilling, well testing, and labor – plus it sets limits on how long or how deep the exploration will go before the well exploration project is pursued or abandoned.
Oil exploration projects must be authorized before drilling begins – and again when the well goes into operation.
3. Track Owner Shares, Land Interests and Other Agreements
Tracking landowner and mineral lease rights is a complicated process. A Joint Venture Accounting system can help you manage these contracts, and comply with your obligations. Over time these contracts may be transferred through sale or inheritance. Your JVA system should have processes to manage the transfer of rights and be able to handle the over-lift or under-lift that may occur due to production schedules.
4. Generate and Track Owner Communications
Related to tracking Mineral Rights Leases and landowner interests is maintaining records of your communications. Oil and gas companies are obligated to notify and/or request permission from interested parties about production schedules, damages, mineral excavation results and all expense / royalty information.
5. Spot Insights and Trends
The ability to use your ERP and Joint Venture Accounting data in a meaningful way is critical. You want to be able to drill down to find root causes and zoom out to find big picture trends.
Looking for a Joint Venture Accounting Solution?
If you’re in the oil and gas industry and are looking for new ERP software with strong Joint Venture Accounting features, we encourage you to look at Dynamics 365 for Finance and Operations with our EnergyCONNECT Joint Venture Accounting package.
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