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Joint Venture Auditing
in the Oil & Gas Done By: Maitham Zaman
Contents
• Definitions • Why Joint
Ventures? • Joint Venture
General Module • JV Operator vs
Non-Operator
• Oil & Gas JV Phases • JV Audit Right • JV Accounting/Audit
Cycle • JV Audit Risk Areas • JV Auditor Skills
Joint Venture (JV) Definition
Business Arrangement
Two Parties
Or More
Combine Share
Loss Profit
Joint Venture (JV) Audit Definition
Process Independent Examination
One of the Parties (Operator)
Activities Procedures Expenditures
Defined Period
Why Companies Do JV?
Risks Spread
Company (X) Company (Y) Company (Z)
Why Companies Do JV?
Share Resources & Experience
Why Companies Do JV?
Financial & Cash
Why Companies Do JV?
JV enables Small Companies to Participate in Big Investments or Projects
Why Companies Do JV?
Exposure To New Technology
JV General Module
Government (Land Owners)
Agreement (PSC)/Concession
Agreement Partners
(Company or More)
Operator Non-Operator
Non-Operator
(JOA)
JV General Module
• Concession Agreement/Production Sharing Contract (PSC): A Contract Between the Government and the Contractor (All JV Partners)
• Joint Operating Agreement (JOA):
Contract Between JV Partners
Types of Block Acquisition
Licensing Auction by
Government
Farm-in/out Agreements
Acquisition of a License Interest
Farmor
Farmee
License Owner
Want to Acquire an Interest of
License
Share Purchase acquire a share of a
company which own the license
Swaps Swapping of Assets
JV Operator vs Non-Operator
• Operator • Non-Operator
Responsibilities: Operate, manage the Block & pay his share of Fund on Time
Rights: Receive Fund from Partners on Time
Responsibilities: Send Fund on Time
Rights: Join in Decision Making, Review & Audit
BUT he should not Loss or Gain
Oil & Gas JV Phases
Block Acquisition (Sign PSC/Concession Agreement)
Assign Operator (Sign JOA)
Exploration (G & G Studies, Seismic Scans)
Appraisal Process (Evaluate Commercial Quantity)
Development (Constructions-Additional Wells-
Installations)
Production (First Oil-Marketing-Supply)
Abandonment (Block Decommissioning)
JV Audit Right
What gives us the Right to Audit the Operator’s Expenditures?
Clauses in the JOA (Joint Operating Agreement)
Usually the Right of Last 24 Months
Types of JV Audit
Joint (Group of Partners)
Sole (One Partner)
JV Accounting/Audit Cycle
Partners Agree on Budget/AFEs
Operator Send Cash Call
Operator Send Joint Interest Billing (JIB)
Audit send Notification to
Operator
Receive & Analyze Detailed Transaction
Listing (DTL)
Reconcile DTL with JIB
Highlight Company's Concerns
Now do your thing (AUDIT) Fieldwork
Write IRs , PF & MF
Issue Draft Report
Discuss with Client
Issue Final Report
JV Audit Risk Areas
Operator
(A) 90%
(B) 30%
(C) 80%
Total=$10M Opt. Share=$9M
Total=$10M Opt. Share=$3M
Total=$10M Opt. Share=$8M
Total=$8M Opt. Share=$7.2M
Total=$14M Opt. Share=$4.2M
Total=$8M Opt. Share=$6.4M
Wrong Allocation
JV Audit Risk Areas
2) Logistics Charges – Supply Vessels
Port
3rd Party Block (C)
3rd Party Block (B)
Block (A) Our Block
Marine Log: Block (A) Block (B) Block (C)
Ledger: Block (A)
JV Audit Risk Areas
3) Rig Mobilization & Demobilization
Our Block
3rd Party Block
Port
From Port to Our Block
From 3rd Party Block
to Our Block
We should Pay the charges
JV Audit Risk Areas
Rig Demobilization
Our Block
3rd Party Block
Port
From Our Block to
Port
From Our Block to 3rd Party
Block
We Pay Charges
3rd Party Will Pay Charges
Make sure we are not charged the Demob
JV Audit Risk Areas
4) General & Administrative Charges (G&A)
G&A charges Should be Allocated FAIRLY between the Blocks
Block (A)
Block (B)
Block (C)
Operator
JV Audit Risk Areas
5) Operator’s Parent Company Overhead (PCO)
Parent Company
Subsidiary
Human Resources
Strategic Planning
Treasury
Others
The Parent Company Will Get a Credit of Small Percentage of Total
Operation Expenditure
Total Expenditures
Operator
JV Audit Risk Areas
5) Operator’s Parent Company Overhead (PCO)
Where is the RISK?
PCO Percentage Calculation Error
Parent Company
Non-Operators
PCO
Direct Charges
Duplicate
JV Audit Risk Areas
6) Well Reconciliation (Inventory)
Drilling Casing
Drilling Bits
Mud
Diesel
Other Tangibles
Daily Drilling Report (DDR)
End of Well Report
Reconcile
Ledger & Books Cement
JV Audit Risk Areas
7) Unbudgeted & Unrelated Activities
Operator
Football Tickets
Charity & Donations
Building Public Roads
JV Auditor Skills
Auditing Skills
Oil & Gas
Accounting
Leadership Skills
Communication Skills Warehouse & Logistics
Report Writing Skills
Data Analysis
What are the main Required Skills?
Q & A Further Inquiries E-mail: [email protected]
