Exploration and production (E&P) companies are under increasing pressure to recover costs during complex production sharing agreements and joint venture operations. The ability to effectively allocate and recover costs from non-operating partners in accordance with the terms of joint operating agreements (JOA) and joint venture contracts can make a significant difference to the level of corporate cost absorbed by the operator.
Even operators with a well-established SAP finance system can benefit from a periodic review of processes, master data and methodology to prevent their allocation and recovery processes becoming dated, inefficient and potentially in breach of JOA allowances.
In Absoft’s experience in this area it is important to:
- Map the required allocation structure on paper
- Assess the quality of master data in your SAP system
- Ask yourself if a true cascade of costs exists in the allocation structure
- Review the impact on month end timetable from allocation requirements
- Determine the best SAP allocation type for each level of allocation
- Create sets, groups, and hierarchies to support the allocation structure
- Consider external factors which may reduce effectiveness
- Review the actualisation of any planned rates included
- Ensure there are clear responsibilities for executing and maintaining allocation steps
Making good quality decisions about these points can help to streamline processes and allow effective allocation of costs within JOAs/ contractual allowances, meaning a greater recovery of costs from non-operating partners.
If the operator of JVs, where you have a non-operated equity, has optimised their allocations for cost recovery, then you are potentially going to be at a disadvantage unless you optimise your own cost recovery process.
Furthermore, many of these tools can effectively be used by non-JV companies who may have similar requirements to recharge project expenditure to third parties based on service provision for example.
For more information, please contact us on +44 (0)1224 707088 or email: firstname.lastname@example.org