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Oil and Gas Industry Upstream Solution Joint Venture Accounting

V.Muthukumaran GPU Oil & Gas APJ SAP Consulting

Oil & Gas Solution Map 2005


Primary Terminal Suppliers & Partners Exploration & Development Hydrocarbon Refining & Appraisal & Production Supply & Gas Manufacturing Distribution Management Transmission Upstream Exploration & Appraisal E&P Contract Management Upstream Field Development Liquid & Gas Production Allocation & Settlement Oil Field Service and Repair Operations Supply, Transmission & Trading Bulk Supply Chain Planning & Optimization Bulk Supply Chain Operations & Scheduling Bulk Supply Chain Execution & Settlement Bulk Supply Chain Reporting & Analytics Physical Oil & Gas Commodity Trading Oil & Gas Paper Trading & Risk Management Refining & Manufacturing Refining Operations Lubes Manufacturing Operations Secondary Distribution Commercial Sales & Retailing

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Customers & Channels

Downstream Marketing & Retailing Marketing Planning & Execution Sales Planning & Account Management Opportunity to Cash Customer Service Terminal Management Bulk Transportation Planning & Execution Service Station Fuel Management Convenience Retailing

Asset Management Enterprise Asset Management

Enterprise Management & Support


Analytics Financials Human Capital Management Corporate Services Operations Support
SAP AG 2007

SAP for Oil & Gas Upstream


In the capital-intensive Upstream Oil and Gas Industry, operators need the tools which enable them to make informed decisions in the effective management of their operations. SAP for Oil & Gas offers a comprehensive solution to meet these demanding challenges, providing a premier enterprise solution that has been enhanced and refined for upstream businesses. The SAP for Oil & Gas Upstream solution components are specifically designed to meet the demanding needs of upstream businesses, providing integrated processes and tools so you can manage your business better.

SAP AG 2007

Upstream Solution Portfolio

Upstream

Midstream

Refining

Primary Distribution

Secondary Distribution

Service Station & Convenience Retailing

xApp Integrated E&P

Joint Venture Accounting

Production & Revenue Accounting

Production Sharing Accounting

Remote Logistics Management

SAP AG 2007

Why SAP JVA?


SAP JVA is the only SAP solution that allows you to track venture expenditures on a venture by venture and partner by partner basis. SAP JVA is fully integrated with: Financial Accounting (SAP FI) Controlling (SAP CO) Asset Management (SAP AM) Materials Management (SAP MM) Production Planning (SAP PP) Plant Maintenance (SAP PM) Project System (SAP PS) allowing you to capture all joint venture transactions by using standard SAP functions. The result is a streamlined workflow and reductions in errors.
SAP AG 2007

Why SAP JVA?


Using proven SAP FI-Special Ledger functionality as its basis, SAP JVA ensures accurate calculations and reporting of venture activities on a venture-by-venture basis. SAP JVA supports joint audit data exchange (JADE) reports, online and in real time, reducing audit headcount, time, and expense. SAP JVA ensures full compliance with all standard overhead methods and calculations (US and international). SAP JVA provides complete drill down capabilities for reporting all ventures, all authorization for expenditures (AFEs) tied to JOA's, overhead analysis, cutback, and billing.

SAP AG 2007

SAP JVA Features and Benefits


Detailed joint venture data capture in real time Cash calls to/from partners Partner billing for venture expenses and revenues Overhead calculation, based on the Joint Operating Agreement Allocations of billable and non-billable costs Multi-currency processing Farm-in/farm-out and equity changes Real-time gross/net venture reporting

SAP AG 2007

JVA Business Objects: Venture


Venture A
EQTYPE 1 Engineering Design
A

EQTYPE 2 Construction

EQTYPE 3 Production

2002

33 1/3 B C 33 1/333 1/3 33 1/3

EG1
A 50 % B 25% D 25 % A 50 % C 25 % B 25%

Ventures associate Equity Types and Equity Groups to define a specific joint operation or purpose

2003

EG2

EG4
A A 25 % D 25 % C 25 % B 25%

A 75 %

C 25%

2004
EG3

33 1/3 B C 33 1/3 33 1/3

EG5

EG6

SAP AG 2007

Joint Venture Integration with Cost Objects


Venture A
EQTYPE 1
EQTYPE 2 Construction EQTYPE 3 Production

New Processing Plant Design Cost centre


A 33 1/3 B C 33 1/333 1/3 33 1/3

EG1

Valid

A 50 % D

B 25%

25 %

A 33 1/3 B 50 % 25% 3 D 25 %

EG2
A A 75 % C 25% C

EG4
A B 33 1/3 33 1/ D 25 % C 25 % A 25 % B 25%

Construction Project
EQTYPE 1 Engineering Design

EG3
.

EG5

EG6

Venture A
EQTYPE 2
EQTYPE 3 Production

Construction

Project

A 33 1/3 B C 33 1/333 1/3 33 1/3

EG1

Valid
A 50 % D B 25% A 50 % B 25% 3 C 25 %

25 %

EG2
A A 75 % C 25%

EG4
A 33 1/3 B C 33 1/ 33 1/3 A 25 % D 25 % C 25 % B 25%

EG3

EG5

EG6

SAP AG 2007

Joint Venture Integration with Cost Objects

Cost Center

Internal Order

Asset

Venture
1

Plant

Project

Prod Order PM Order

SAP AG 2007

Joint Venture Coding for Cost Object

Cost Object Cost Object


Project Cost centre Internal Order Joint Venture Equity Type Recovery Indicator JV Object Type Plant Maintenance Order Production Order Network Order JIB/JIBE Class JIB/JIBE Subclass A

SAP AG 2007

Recovery Indicator
Identifies category of a joint venture transaction Indicates whether a particular revenue or expense is shared by venture partners Used to select data for reporting to venture partners Used to distinguish between joint and own revenues and expenditures Recovery indicator assignment & determination:
FI User Entry Document Type G/L Account & Cost Element Cost Object Default (Corporate)
SAP AG 2007

CO

MM

Joint Venture Integration and Interface


Joint Venture Document Joint Venture Document

FI CO PS HR AM

MM

SD PM

Itm Account Cost Obj. Venture EqG RI 1 1 2 3 4 4 Vendor Vendor Cost 1 Cost 2 Tax Tax CC-1 CC-2 CC-1 CC-2 CC-1 CC-2 JVI001 JVI002 JVI001 JVI002 JVI001 JVI002 A01 A01 A01 A01 A01 A01 BI BI BI BI BI BI

Amount - 70.50 - 47.00 60.00 40.00 10.50 7.00

Accounting Interface

PP

Accounting Document
Itm Account Cost Obj. Amount 1 2 3 4 Vendor Cost 1 Cost 2 Tax CC-1 CC-2 -117.50 60.00 40.00 17.50

JV Interface

Special Ledger Interface

FI DATA GLT0

JV DATA JVT01

BILLING JVT02

CUSTOM DATABASE

SAP AG 2007

Joint Venture Asset Posting - Example


JVA derives venture coding for an asset using the cost centre entered on the asset master record
Vendor Invoice Asset Master

JV Document Asset Document

SAP AG 2007

Joint Venture Material Posting - Example


JVA derives venture coding for material movements from a special stock cost object that is assigned to a plant and a valuation type (which is optional) associated with the plant.
Goods Receipt MM Assignments

Material Document

JV Document Accounting Doc


JV Document

SAP AG 2007

Joint Venture Vendor Invoice Posting - Example


The expenses are assigned to the JV partners via the cost centre assigned to the expense line items
Post Vendor Invoice Cost Centre Assignment

JV Document Accounting Doc

SAP AG 2007

Periodic Processes

Foreign Currency Valuation Cost Transfers Cost Allocation & Settlement Overhead Calculations (PCO) Equity Adjustments Cutback Joint Venture Close Partner Netting Final Settlement Corporate Close Billing

SAP AG 2007

Assessments & Distributions


Cost allocations are based on R/3 CO functions with JVA required enhancements, including:
Substitution of the recovery indicator (recovery indicator manipulation) Allocation of secondary costs Re-run of settlement
Distribution (through original cost element) Internal CO only Unallocated Costs Allocation (via secondary cost element) Internal CO only

Cost Object B
Materials Internal Labour External Labour Staff Salaries Rent & Rates Light & Heating Vehicles Repairs & Servicing Travelling Hotels Entertaining Telecoms Mail & Carriage 8 12 40 80

Cost Object A
Materials Internal Labour External Labour Staff Salaries Rent & Rates Light & Heating Vehicles Repairs & Servicing Travelling Hotels Entertaining Telecoms Mail & Carriage Assessment A - 350 0 20 30 100 200

Cost Object B
Materials Internal Labour External Labour Staff Salaries Rent & Rates Light & Heating Vehicles Repairs & Servicing Travelling Hotels Entertaining Telecoms Mail & Carriage

40%

40%

Assessment A Total

140 140

Total

140

Total

SAP AG 2007

Equity Changes & Adjustments


Farm-In / Farm-Out
A partner joins or leaves a venture

Redetermination
Partner shares are adjusted to reflect changes in business conditions, such as reserves

Funding Currency Change


A funding currency is added or removed from a venture

Current and prior period equity adjustments handled

SAP AG 2007

Suspense Processing Suspense functionality supported for:


Partner Suspense Equity Group Suspense Project/WBS Element Suspense

Specific costs are not charged to a venture but instead posted to suspense accounts for the duration (year & period) a project remains in suspense
Set project in suspense
Project Suspense
Selection Company Code Venture GBU1 JV0001 to JV9999

Post Costs
Accounting Document Accounting Document Itm Account 1 O'head 2 O'head Cost Obj. Amount Admin - 50.00 CC-1 50.00

JVA Project Suspense

Joint Venture Document Joint Venture Document Itm Account Cost Obj. Venture EqG RI Amount 1 O'Head Admin C00001 A01 NB - 50.00

Posting Fiscal Year Period Posting Date 2002 12 31.12.2002

2 3 Joint Venture Document Joint Venture Document Itm Account Cost Obj. Venture EqG RI Amount 1 O'Head Admin C00001 A01 NB - 50.00 2 O'Head CC-1 JVI001 A01 BI 50.00

O'Head O'Head

CC-1 CC-1

JVI001 JVI001

A01 A01

BI BS

50.00 0

Options Test run

SAP AG 2007

Overheads International Parent company overhead US/Canada Well related allocations

Cost
Stepped Rate Rule GBP 140 000
GBP 250 000

Overhead

1%

GBP

2 800

2%
GBP 10 000

GBP 10 000
GBP 0

5%

GBP

500

SAP AG 2007

Cutback Processing

Gross

Operating Exp / Rev 100

Cost Object RI = Bill Venture A

The cutback process allocates JV partners' expenses or revenues according to their working interest ownership.

Venture A

Cutback

ET1 Company Code 50 % Partner B EG2 25 % Partner D 25 %

Net

Operating Exp / Rev 50

AR / AP Partner B 25

AR / AP Partner D 25

SAP AG 2007

Cash Call Processing


Equivalent to down payments or pre payments Can be issued for future months (Reclassification) Request and cash receipts carried forward to billing process Integrated with Accounts Receivable and Accounts Payable
Cash Call Request:
Gross to venture/project Net to venture/project/partner
Partner Shares

FI Document

Venture

JV0001

EqG

A01

FCurr

NOK

Partner JVGBU1 JV5001 JV5101

FCurr Amt 600.00 300.00 100.00

Lcurr Amt 46.74 23.37 7.79

Accounts Rec.- Cash Calls

Accounts Rec.- Cash Calls

Cash Call

Partner C Partner A 100 600 Accounts Rec.- Cash Calls Partner B 300

SAP AG 2007

Joint Venture Billing


Payroll Vendor Invoices Internal Allocations Accounts Receivable JV Integration Mgr. JV Integration Mgr. Orders

Costs

JV Billing creates various customized billing documents to send to your JV partners


Billing
Statement Exp. Suppl Expenditure Detail Inv. Suppl Detail Invoice

JV Summary Ledger Cutback JV Billing Ledger JV Integration Mgr. Cash Calls Paid Cash Calls Partner Payments Cutback Invoice Partner Adjustments

SAP AG 2007

Inter-Company Ventures

Affiliated Inter-Company Setup


FI Document

Cutback

CO
To Affiliate: INVOICE

Cutback creates A/P entries to operator on the books of the affiliated partner as configured in SAP JVA and SAP FI

Intercompany Processing

FI A/P

Cash Call

Cash Calls

Gross cash calls create A/P entries on the books of the affiliated partner, as defined in configuring SAP JVA and SAP FI

SAP AG 2007

JV Partner Auditing
Standard JVA Reports:
Gross billable/all by venture/account Gross billable/all by cost object Gross billable/partner net by cost object Gross billable/all by cost object foreign currency Gross billable/partner net for JIB Remaining cutback by cost object Posted suspense overview Gross non-operated by cost object Venture/equity group/billing indicator Partner/billing indicator

Billing Reconciliation Extract:


Reconciliation

Statement Exp. Suppl Expenditure Detail Inv. Suppl Detail Invoice


Ledger 4B and 4D JVA Billing Balances Ledger 4A and 4C JVA Balances

SAP AG 2007

Non-Operating Ventures
Online transaction for incoming invoices for non-operated ventures
Input forms, defined in JVA configuration, control the layout of the input screens Input form includes the SAP coding block information (account, cost object, asset)

Incoming cash calls are handled with the cash call functions Non-operated venture processing is fully integrated with SAP accounts payable functions
Invoice
Da Tra ta En nsa try ctio n

R/3

Accounts Payable
Nonoperating net share

Cash Call

all h C ction s Ca nsa Tra

SAP AG 2007

Cash and Banking Main Features


Balanced books by venture Venture specific bank accounts v. central disbursement account Funding currency defined for each venture Bank reconciliation and switching Exchange differences for each venture

SAP AG 2007

SAP JVA Business Benefits Provides an accurate accounting and reporting tool, with realtime information on any partner or venture Flexibility to handle business changes retroactive equity change handling, flexible master data and customizing Full integration with SAP core processes provides:
highly automated JVA processing ease of use for users full document drill-down & tracking, historical data and audit trail

End-to-end integrated business process coverage ensures:


streamlined cash call and joint interest billing processes greater efficiency in billing partners- shortening the cash flow cycle faster month end closing and financial reporting at lower cost
SAP AG 2007

SAP JVA Business Benefits And the bottom line result is: increased customer/partner satisfaction with fewer incorrect billings lower administration costs time savings with greater automation timeliness of information faster period end reporting, greater ability to meet reporting deadlines auditability SAP standards for storage and retrieval of historical data with full tracking of documents

SAP AG 2007

Thank You

SAP AG 2007

Success Story: Statoil, Norway

Statoil saves time and money with SAPs Joint Venture Accounting
www.statoil.com

SAP for Oil & Gas

Statoil ASA is one of the worlds largest offshore oil and gas companies, and has substantial international operations. Statoil has a presence in 28 countries, and is one of the worlds largest net sellers of crude oil. The company plays a leading role on the Norwegian continental shelf. As either producer or operator it is involved in 20 oil and gas fields, totalling 150 licences. Statoil has been a publicly listed company since 2001.

Our routines are undoubtedly more efficient and the accuracy of our accounting has increased since we started using SAP Joint Venture Accounting (JVA). Where previously it could take two days to produce a monthly statement of accounts, it now takes half that time and the data is of a much higher quality. Obviously, this means considerable cost savings for Statoil.
Kjell-Petter Gilje Statoil ASA

SAP AG 2007

Some of our JVA Customers

SAP AG 2007