Joint Venture AccountingIntroduction

SAP AG 2003

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 for Oil & Gas Upstream

SAP AG 2003

SAP for Oil & Gas - Upstream Solution Components

SAP Upstream includes the following industry-specific solutioncomponents:

Production & Revenue AccountingSAP PRA

Supply Chain Processing

Goods Receipt Processing

Shipping & Container

Management

MaterialTracking

Material Holding

TransportRequest

TransportOrder

PurchaseRequest

PurchaseOrder

GoodsReceipt

OutboundDelivery

OutboundShipment

MaterialRequest

Container

MaterialReservation

Material Receipt

Material Issue

ReturnsHandling

Offshore Logistics ManagementSAP OLM

CutbackCutback

Venture A

EG2

Company Code50 % Partner B

25 %

Partner D25 %

AR / AP

Partner D25

ET1

AR / AP

Partner B25

AR / AP

Partner B25

Cost ObjectCost Object

Venture AVenture A

Cost ObjectCost Object

Venture AVenture A

Gross

Net OperatingOperatingExp Exp / Rev/ Rev

5050

OperatingOperatingExp Exp / Rev/ Rev

5050

OperatingOperatingExp Exp / Rev/ Rev

100100

Joint Venture AccountingSAP JVA

Production SharingProduction SharingAgreementAgreement

Definitions

Production Sharing AccountingSAP PSA

SAP AG 2003

Oil & Gas Solution Map

Enterprise Management Strategic Enterprise Management Business AnalyticsBusiness

Intelligence & Decision Support

Accounting

Employee Relationship

Management & Workforce Analytics

Joint Venture Management

Upstream Exploration & Appraisal Development Production Marketing Disposal

SupplySupply Chain

Planning & Optimization

Acquire, Trade & Sell

Exchange & Throughput

HandlingScheduling Inventory Management

Primary Distribution &

Transport

Secondary Distribution & Transportation

Manufacturing Manufacturing Planning & Optimization Manufacturing Process Batch Manufacturing Blending & PackagingProduct Quality

Management

Sales, Service & Marketing Marketing Contracts, Sales & Pricing Service Analytics

Service Station & Convenience Retailing Convenience Retailing Fuels Management

Site & Headquarter Accounting

Business Analysis & Reporting

Enterprise Asset Management Specify & Design Procure & Build Operate & Maintain Decommission & Dispose

Business Support Employee Life-Cycle & Transaction Management ProcurementFinancial Supply Chain

ManagementEnvironment, Health and

Safety

Edition 2003

SAP AG 2003

Exploration & Appraisal

Portfolio Risk AnalysisIdentificationJoint Venture Development(S81)Undeveloped Leasehold AcquisitionSurveying, Positioning & EvaluationAppraisal Drilling & Boundary Determination

Development

Field Development ConceptFunding & Budgeting (Partner Determination) (S12)Project Planning (S8)Development DrillingFacility Construction (S8)Development Logistics (S79, S8)

Production

Reservoir ModelingDepletion PlanningWell ServicingSurface Facilities Maintenance (S8)Production Management & Reporting(S79)Secondary/Tertiary Recovery Planning and ManagementRemote Logistics (S83)Production/Revenue Accounting (S79)Production Sharing Agreement Handling(S81)Lease/License Administration (S79)Reserves Accounting & ReportingPortfolio Business Performance Analysis(S79)Production Sharing Government Contracts(S82, S81)Production Sharing Cost Recovery (S82, S81)Production Sharing Reporting (S82, S81)Upstream Graphics (S79)Gas Plant Accounting (S79)Lease Fuel Valuation Process (S79)Material Supply Capabilities (S83)Remote Logistics Goods Receipt Processes(S83)Container Management Capabilities (S83)Remote Logistics Temporary Holding Processes (S83)Goods returns Facilities (S83)Goods Tracking Capabilities (S83)Interfaces to Data Capture System (S79)

Marketing

First Purchaser (S79)Crude, Gas & NGL Marketing (S79)

Disposal

Asset Transfer (S12)Environmental ComplianceSite Remediation (S8)Property Marketing & Due Diligence Preparation (S12)Plug & Abandon Wells & Reporting to State

Oil & Gas Solution Map 2003 (Upstream) - 1

SAP AG 2003

Oil & Gas Solution Map 2003 (Upstream) - 2

Strategic Enterprise Management

Stakeholder Relationship Management (S11)Strategy Management(S11)Performance Measurement (S11)Strategic Planning & Simulation (S11)Business Consolidation(S11)

Business Analytics

Customer Relationship Analytics (S1, S13)E-Analytics (S13)Supply Chain Analytics(S3, S13)Financial Analytics(S12, S13)Human Resource Analytics (S10, S13)Product Lifecycle Analytics (S7, S13)

Business Intelligence & Decision Support

Flexible Reporting(S13)Decision Automation & Tracking (S13, S1, S3, S7, S11, S9, S5)Information Dissemination & Sharing (S13, S99)Performance Monitoring(S13, S11)Planning & Simulation(S11, S13)Ad hoc Analysis (S13)Collaborative Decision Support (S13, S99)Data Collection & Integration (S13)Content Management & Collaboration (S13, S99)

Accounting

Financial Statements(S12, S11)General Ledger & Subledgers (S12, S11)Revenue & Cost Accounting (S12, S11)Order & Project Accounting (S12, S11)Product & Service Cost Calculation (S12, S11)

Employee Relationship Management &

Workforce AnalyticsInformation Collaboration (S9)Manager Self-Service(S9)Employee Self-Service(S10)Employee Collaboration(S9)Strategic Alignment(S10)Reporting & Benchmarking (S10)

Joint Venture Management

Assessment & Distributions (S81)Overhead Splitting(S81)Suspense Processing(S81)Equity Change Processing (S81)Cut Back Processing(S81)Cash Call Reclassification (S81)Partner Netting (S81)Joint Asset/Inventory Management (S81)JV Partner Auditing(S81)Non-operating Properties (S81)Equity Adjustment(S81)

SAP AG 2003

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.

Why SAP JVA?

SAP AG 2003

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.

Why SAP JVA?

SAP AG 2003

Detailed joint venture data capture in real time

Cash calls 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

SAP JVA Features and Benefits

SAP AG 2003

JVA Business Objects: Venture

EG3

C75 % 25%

Venture A

EG4

EG1

33 1/3

EQTYPE 1Engineering

Design

EG6

B25%

A25 %

C25 %

D

EG2

25%BA

50 %D

25 %

EG5

EQTYPE 2

Construction

EQTYPE 3

Production

B

A33 1/3

C33 1/3

33 1/3

B

A33 1/3

C33 1/3

33 1/3

25%BA

50 %D

25 %

25 %

A

2002

2003

2004

Ventures associate Equity Types and EquityGroups to define a specificjoint operation or purpose

SAP AG 2003

.

A

EG3

C75 % 25%

Venture A

EG1

33 1/3

EQTYPE 1

EG2

25%BA

50 %D

25 %

Valid

EQTYPE 2

ConstructionEQTYPE 3

Production

B

A33 1/3

C33 1/3

33 1/3

33 1/3

3

EG4

EG5

B

A

C33 1/3

33 1/

25%BA

50 %D

25 %

EG6

B25%

A25 %

C25 %

D25 %

A

EG3

C75 % 25%

Venture A

EG1

33 1/3

EQTYPE 1Engineering

Design

EG2

25%BA

50 %D

25 %

Valid

EQTYPE 2

ConstructionEQTYPE 3

Production

B

A33 1/3

C33 1/3

33 1/3

3

EG5

B

A33 1/3

C33 1/3

33 1/

EG4

25%BA

50 %D

25 %

EG6

B25%

A25 %

C25 %

D25 %

New Processing Plant

Design

JVA Ventures and Cost Objects

A

A

Cost centre

Project

Construction Project

SAP AG 2003

Cost Center

PM Order

Internal Order

Project Prod Order

VentureAsset Plant

1 2

JVA Ventures and Cost Objects

Joint venture coding is derived from Cost Objects in Controlling (CO). Examples include Cost Centersand Orders.

Each Cost Object includes the following joint venture fields in the master data:y Joint Venturey Equity Typey Recovery Indicatory Joint Venture Object Typey JIB/JIBE Classy JIB/JIBE Sub-Class A

SAP AG 2003

Cost ObjectCost Object

Joint Venture Coding for Cost Object

Production Order

Network Order

Plant Maintenance

Order

Project Cost centre Internal Order

Joint Venture

Equity Type

Recovery Indicator

JV Object Type

JIB/JIBE Class

JIB/JIBE Subclass A

Recovery indicators include the following:y Billable (BI)y Corporate (CP)y Non-billable (NB)y Cutback (CB)

SAP AG 2003

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:

Default (Corporate)

Cost Object

G/L Account & Cost Element

Document Type

User Entry

MMCOFI

SAP AG 2003

Joint Venture Interface

Accounting Interface

Special Ledger

Interface

AM

MMFI

PS

COSD

HR

PM

Accounting Document

Itm Account Cost Obj. Amount1 Vendor -117.502 Cost 1 CC-1 60.003 Cost 2 CC-2 40.004 Tax 17.50

JV Interface

Joint Venture DocumentJoint Venture DocumentItm Account Cost Obj. AmountVenture EqG RI1 Vendor CC-1 - 70.50JVI001 A01 BI 1 Vendor CC-2 - 47.00JVI002 A01 BI 2 Cost 1 CC-1 60.00JVI001 A01 BI 3 Cost 2 CC-2 40.00JVI002 A01 BI 4 Tax CC-1 10.50JVI001 A01 BI 4 Tax CC-2 7.00JVI002 A01 BI

JV DATAJVT01

BILLINGJVT02

CUSTOMDATABASE

FI DATAGLT0

PP

In this example, an invoice is posted for the direct acquisition of a joint venture asset. The asset is assigned to the cost centre JV00-B in the time-dependent parameters, and this cost centre is

assigned to venture JV1001, so the asset transaction is coded against venture JV1001.

The venture coding is copied from the asset entry to the vendor entry.

SAP AG 2003

Joint Venture Asset Posting - Example

JV Document

Vendor Invoice

Asset Document

JV Document

Asset MasterJVA derives venture coding for an asset using the cost

centre entered on the asset master record

In this example, a goods receipt document is posted to receive stock worth GBP 500 into plant JA01. Plant JA01 is assigned to cost centre JV00-S01. Cost centre JV00-S01 has the following joint venture coding:y Venture JV1001y Equity Type Cy Recovery Ind. BI

The resulting joint venture document is coded with cost centre JV00-S01 and all the joint venture coding on that cost centre.

SAP AG 2003

Joint Venture Material Posting - Example

JV Document

Goods Receipt

Material Document

Accounting Doc

JV Document

MM Assignments

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.

In this example, a goods receipt document is posted to receive stock worth GBP 500 into plant JA01. Plant JA01 is assigned to cost centre JV00-S01. Cost centre JV00-S01 has the following joint venture coding:y Venture JV1001y Equity Type Cy Recovery Ind. BI

The resulting joint venture document is coded with cost centre JV00-S01 and all the joint venture coding on that cost centre.

SAP AG 2003

Joint Venture Vendor Invoice Posting - Example

Post Vendor Invoice

Accounting Doc

JV Document

Cost Centre Assignment

The expenses are assigned to the JV partners via the cost centre assigned to the expense line items

You use cutback to recover costs from joint venture partners. Cutback posts credits against joint venture costs and charges these costs to venture partners.

SAP AG 2003

Cutback

Venture A

EG2

Company Code50 % Partner B

25 %

Partner D25 %

AR / AP

Partner D25

ET1

AR / AP

Partner B25

Gross

Net

The cutback process allocates JV partners'expenses or revenuesaccording to theirworking interest ownership.

OperatingExp / Rev

50

OperatingExp / Rev

100

Cutback Processing

RI = BillCost Object

Venture A

SAP AG 2003

JV Billing Ledger

Billing

JV Integration Mgr.

StatementExp. Suppl

Expenditure Detail

Inv. SupplDetail

Invoice

Joint Venture Billing

Internal Allocations

Costs

Orders

PayrollVendor

Invoices

Accounts Receivable

JV Summary Ledger

Cutback

JV Integration Mgr.Cash Calls

Paid Cash Calls

Partner Payments

Cutback Invoice

Partner Adjustments

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

JV Integration Mgr.

SAP AG 2003

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

Venture JV0001 EqG A01 FCurr NOK

Partner FCurr Amt Lcurr Amt

JVGBU1 600.00 46.74

JV5001 300.00 23.37

JV5101 100.00 7.79

Partner Shares

Cash Call Request:

FIDocument

Cash Call

Gross to venture/projectNet to venture/project/partner

AccountsRec.- Cash

CallsPartner A

600Accounts

Rec.- Cash Calls

Partner B300

AccountsRec.- Cash

CallsPartner C

100

Inter-company functions allow you to book inter-company entries on the books of the operating partner and any of its affiliated businesses. By identifying these relationships, through inter-company mappings of accounts and other relevant objects, SAP JVA automates processing of inter-company joint venture transactions.

SAP AG 2003

COTo Affiliate:

INVOICE

FI

A/P

FIDocument

Cash Call

Affiliated Inter-Company Setup

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

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

Inter-Company Ventures

Cutback

IntercompanyProcessing

Cash Calls

SAP AG 2003

Assessments & Distributions

Cost allocations with SAP Controlling and JVA allow you to: Configure allocation rules Substitute the recovery indicator (recovery indicator manipulation) Allocate secondary costs Re-run settlement Transfer costs to operating units

Cost Object B

Materials

Mail & CarriageTelecomsEntertaining

12Hotels8Travelling

Repairs & ServicingVehiclesLight & HeatingRent & Rates

Staff Salaries

80External Labour40Internal Labour

140Total

Distribution (through original cost element)Internal CO only

Cost Object B

140Assessment A

Materials

Mail & CarriageTelecomsEntertainingHotelsTravellingRepairs & ServicingVehiclesLight & HeatingRent & RatesStaff SalariesExternal LabourInternal Labour

140Total

Allocation (via secondary cost element)Internal CO only

Cost Object A

- 350Assessment A

Materials

Mail & CarriageTelecomsEntertaining

30Hotels20Travelling

Repairs & ServicingVehiclesLight & HeatingRent & RatesStaff Salaries

200External Labour100Internal Labour

0Total

40%

Unallocated Costs

40%

JVA supports two types of postings to account for changes in venture ownership. An ownership change may occur (i.e., a new equity group is assigned as owner of the JV) in the current

period after postings have already been assigned to the old equity group but before Cutback has been run to assign JV/equity group expenses to partners. JVA provides a process that automatically posts a reversal of the debit to the original equity group and reposts the expense to the new equity group. Running this process ensures that all postings to the JV for the period will be assigned to the equity group that owns the venture as of the end of the period. This posting is executed in JVA because the JVA process Cutback will access this new expense posting and post appropriate portions to the partners in the new equity group in FI A/R.

An ownership change may be recorded after the close of a previous accounting period. JVA also offers a process to handle the accounting impact of this change in ownership. In this case, the posting is made in FI to the affected partners because processing for the period has already been completed.

SAP AG 2003

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

Selection

GBU1Company Code

Venture JV0001 JV9999to

Project Suspense

Posting

2002Fiscal Year

12Period

31.12.2002Posting Date

Options

Test run

Set project in suspense Post Costs

Accounting DocumentAccounting Document

Itm Account Cost Obj. Amount1 O'head Admin - 50.002 O'head CC-1 50.00

Joint Venture DocumentJoint Venture Document

Itm Account Cost Obj. AmountVenture EqG RI1 O'Head Admin - 50.00C00001 A01 NB2 O'Head CC-1 50.00JVI001 A01 BI

Joint Venture DocumentJoint Venture Document

Itm Account Cost Obj. AmountVenture EqG RI1 O'Head Admin - 50.00C00001 A01 NB2 O'Head CC-1 50.00JVI001 A01 BI 3 O'Head CC-1 0JVI001 A01 BS

JVA Project Suspense

PCO calculates overhead charges for a venture. These charges are uncalculated benefits received from the operator and the operator's group of companies (the parent company).

PCO rules are defined for a joint venture company in JVA configuration. They are defined as uplift percentages to be applied to joint costs, based on thresholds. They are called stepped rate rules.

Stepped rate rules are defined in JVA configuration with a name, timeframe, description, and steps. Each step has a threshold amount and a rate. The rules are assigned to a JOA on the Overhead tab in the JOA master.

SAP AG 2003

Overheads

International Parent company overhead US/Canada Well related allocations

OverheadCost

Stepped Rate Rule

1%

2%

5%GBP 10 000

GBP 0

GBP 250 000

GBP 10 000 GBP 500

GBP 140 000 GBP 2 800

Partner netting is optional. You use partner netting to clear open items from partner accounts, leaving a single net open item to carry forward to the next accounting period or fiscal year. Partner netting selects open items by venture, equity group, partner, and (if active) operations month. These are cleared and replaced by a single net open item.

Rule, for which open items are netted and how the net item is posted, are defined in posting rules in JVA configuration.

Partner netting selects open items by venture, equity group, partner, and (if active) operations month. These are cleared and replaced by a single net open item.

Posting rules define which open items are netted and how the net item is posted.

SAP AG 2003

Partner Netting

Venture V1

Part

ner A

64,4004006

4,4005

J - Cutback

34,000

4,0001

K Cash Due

4,0006

14,000

L Cash Called

411,000

4,0003

Bank

11,0004

211,000

A/P

54,400

11,0002

Joint Costs

1. Cash Call2. Invoice3. Cash Call Payment4. Invoice Payment5. Joint Venture Cutback6. Partner Netting

Venture V1

6,60000

400- 7,000

Joint CostsAccounts PayableJV Cash Calls Out (K)JV Rec. under CC (J,L)JV BankPartner Netting

Itm SEI Account. Amount1 J Partner A 4002 J Partner A -4,4003 L Partner A 4,000

Partner netting allows you to clear open items from partner accounts, leaving a single net open item to carry forward to the next accounting period or fiscal year.

Partner netting postings are fully customizable

Changes in equity occur for the following two main reasons:y Farm-In / Farm-Outy A partner joins or leaves a venturey Redeterminationy Partner shares are adjusted to reflect changes in business conditions, such as reserves

In each of these cases a new equity group is added to the venture to reflect the changes. The old equity group is retained, so that adjustments to the old shares can be made and history of postings is always available.

For similar reasons, a change in funding currency is affected by creating a new equity group, with the funding currency added or removed.

When you create a new equity group, documents, which should have been posted to the new equity group, may already have been posted to the old equity group. You could reverse all the incorrect postings and post to the new equity group. However, SAP JVA provides the following two programs to handle these changes:

y The current period program handles changes before cutback has been run for the old equity groupy The prior period program handles changes after cutback has been run for the old equity group

SAP AG 2003

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

Equity Changes & Adjustments

Audit support allows you to give non-operating partners detailed accounting transaction records in anelectronic format to assist transaction audits. These records are based on operator-defined selection criteria and can be restricted at multiple levels. JADE requirements are also supported.

SAP AG 2003

JV Partner Auditing

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

Standard JVA Reports:

Billing Reconciliation Extract:Reconciliation

Ledger 4B and 4DJVA BillingBalances

Ledger 4A and 4CJVA Balances

StatementExp. Suppl

Expenditure Detail

Inv. SupplDetail

Invoice

Non-operated venture processing facilitates integrated handling of incoming, non-operated invoices with SAP accounts payable functions. You can record these invoices online. In addition, cash call

features are available for non-operated ventures at the venture and project level.

SAP AG 2003

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

Non-Operating Ventures

InvoiceInvoiceData Entry

Transaction

Cash CallCash CallCas

h Call

Transact

ion

R/3

Accounts Payable

Non-operating net share

Balanced Books By Venture Balanced books by venture allows you to produce balanced financial statements on a venture by venture

basis. If a document without balancing-entries-by-venture is posted to the joint venture ledger, the data capture process creates an inter-venture booking, to balance the document by venture.

Bank Account Switching Bank account switching is common practice outside North America. Large ventures are funded from one

or more dedicated venture bank accounts. Depending on the venture, SAP JVA determines the bank account from which an invoice is paid. SAP JVA also produces correspondence, notifying the bank to make all required transactions for the movement of cash between accounts. In addition, bank account switching produces all required settlement documents, and can calculate all applicable interest.

Other Functions: (mention if time permits): Asset and Material Transfer Asset and material transfer capabilities allow you transfer assets and materials to joint venture properties at

the current replacement price, rather than at historical cost.

Net Profit and Carried Interest Profit Partners Net profit and carried interest profit partners allow you to allocate payments and a net profit interest to a

non-operating partner, and to set up a carried interest arrangement, if necessary.

SAP AG 2003

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

Cash and Banking

SAP AG 2003

mySAP JVA Key Benefits

Integration with financials, materials management and asset management streamlines workflow and greatly reduces errors . . .traditional packages have multiple charts of accounts, interface files that are passed between modules via batch processing (weekly, monthly, annually).

Supports industry-standard JADE (Joint Audit Data Exchange) reports, on-line and in real time . . . reduces audit headcount, time and expense.

Full compliance with all standard overhead methods and calculations (US and international)

Complete drill down capability for reporting: all ventures, all AFEs tied to JOA, overhead analysis, cutback and billing.

Business Drivers: Maximize Assets, Minimize Overhead