Fixed Operating Costs can be allocated based on capital interest or throughput interest. It will usually depend on how significant these costs are compared to the Variable Operating Costs and how significantly the capital interest can vary from the throughput interest. Variable Operating Costs are usually allocated based on the throughput interest (to account for different wells with different ownerships and different production rates) but can sometimes be allocated based on capital interest (for example, if all wells tied in to a facility have the same ownership). It is very important to check the governing JV Agreement to verify how these costs are actually supposed to be shared. The following diagram is a visual representation of the various operating cost splits: Auditing the Joint Account Audits of the Joint Account are important! They are conducted against the Land and/or Joint Venture Agreements to determine if capital and operating costs have been allocated correctly and accurately. The Agreements contain clauses detailing specific audit provisions, timelines that they must be conducted within and review parameters by non-operators. This process helps protect the interests of all parties (i.e. a second set of eyes). It is important to do things right the first time – it saves time and money in the long run (G&A costs). Stewarding to your agreements may alleviate partner concerns which, if unresolved, may affect your profit and net income. The bottom line is, create value rather than destroy it! Depending on the agreement (Mineral Land or Joint Ventures) the Land Negotiator or Joint Venture Representative should work closely with its Joint Venture Accountants and review everything relating to costs and allocation under the governing agreements to ensure that the expenses, whether capital or operating, are in accordance with the terms of the governing agreement. Tracey Moore-Lewis (Education Director – PJVA) Lorie Caron (Administration Director – PJVA) Grant Feddema (Marketing Director – PJVA) Kent Black (Publicity Director – PJVA)
Fixed Operating Costs can be allocated based on capital interest or throughput interest. It will usually depend on how significant these costs are compared to the Variable Operating Costs and how significantly the capital interest can vary from the throughput interest. Variable Operating Costs are usually allocated based on the throughput interest (to account for different wells with different ownerships and different production rates) but can sometimes be allocated based on capital interest (for example, if all wells tied in to a facility have the same ownership). It is very important to check the governing JV Agreement to verify how these costs are actually supposed to be shared. The following diagram is a visual representation of the various operating cost splits: Auditing the Joint Account Audits of the Joint Account are important! They are conducted against the Land and/or Joint Venture Agreements to determine if capital and operating costs have been allocated correctly and accurately. The Agreements contain clauses detailing specific audit provisions, timelines that they must be conducted within and review parameters by non-operators. This process helps protect the interests of all parties (i.e. a second set of eyes). It is important to do things right the first time – it saves time and money in the long run (G&A costs). Stewarding to your agreements may alleviate partner concerns which, if unresolved, may affect your profit and net income. The bottom line is, create value rather than destroy it! Depending on the agreement (Mineral Land or Joint Ventures) the Land Negotiator or Joint Venture Representative should work closely with its Joint Venture Accountants and review everything relating to costs and allocation under the governing agreements to ensure that the expenses, whether capital or operating, are in accordance with the terms of the governing agreement. Tracey Moore-Lewis (Education Director – PJVA) Lorie Caron (Administration Director – PJVA) Grant Feddema (Marketing Director – PJVA) Kent Black (Publicity Director – PJVA)