Production Sharing Accounting
Oil supplies in accessible areas have been fully exploited, oil companies have been compelled to seek petroleum reserves in remote regions of the world to satisfy
the demand for energy. This effort has led the companies to form alliances with the governments of developing countries by negotiating contracts, known as
production sharing agreements, with them In many developing countries, the government manages the major natural resources. To facilitate development of these resources, the government may grant a concession to a major oil company which possesses the capital and technical expertise necessary to tap the country’s petroleum reserves.
The fiscal relationship between the government and the contracting company is specified in a production sharing agreement or contract. The agreement specifies
the rights and obligations of the parties, and it provides the formulas to be used to compute the various amounts involved.
In return for the right to pursue a petroleum production project in a country, a contracting company typically agrees to pay the government a royalty on production. This royalty payment is computed on gross production volume or revenue before any costs are deducted.
In return, the contracting company is entitled to recover the costs it incurs on the venture. The amounts the company can recover during any accounting period
for various types of costs are stated as a percentage of either total production or production after deduction of the government’s royalty.
When the government’s royalty and the costs recovered by the contractor have been deducted from production volumes or revenue, the resulting net profit is then distributed to the parties on a percentage basis.
The SAP Production Sharing Accounting system (PSA) supports the reporting requirements for government royalty and contracting company cost recovery
of petroleum exploration and production projects that oil companies undertake in developing countries.
- The government takes a royalty from the total gross production revenue as well as an economic rent from the remaining revenue available for sharing.
- The remainder is the contractor's revenue entitlement.
- For the contractor, the entitlement consists of cost recovery plus the contractor’s share of remaining revenue available for sharing.
- Cost recovery may include capital, operating or other expenses.
BEST PRACTICE SOLUTION BY DILIGENT CONSULTING
DILIGENT CONSULTING PSA Best practice solution consist of
- Model business blueprint based on variable business requirement such as
- Country Specific reporting requirement
- Country specific Cost & Profit petroleum requirement
- Royalty processing
- Position papers on
- Master data Design
- PS & CO Integration
- Asset Accounting
- Period end process
- Model configuration document for
- Roll Up rules
- PSA Calculation rules & Schemas
- Validation & Substitution
- Customised programs for
- India specific profit petroleum calculation
- DGH Reporting