Understanding Annual Equalization and Operating Cost Adjustments
Dive into the intricacies of annual equalizations and operating cost adjustments in the oil and gas industry. Learn about recalculation processes, fee structures, and the importance of verifying non-operated equalizations. Explore the connection between equalizations and Gas Cost Allowance for a comprehensive understanding of financial responsibilities and revenue distributions.
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Presentation Transcript
PJVA MAY 27, 2015
1) DEFINITION 2) WHY DO EQUALIZATIONS ? 3) THIRD PARTY FEES 4) VERIFYING NON-OPERATED EQUALIZATIONS 5) BOOKING EQUALIZATIONS (13THMTH ADJUSTMENTS) 6) TO PAY OR NOT TO PAY OPEN DISCUSSION
RECALCULATION OF EACH PRODUCERS SHARE OF OPERATING COSTS, FEES, AND CUSTOM USER REVENUES BASED ON EACH PRODUCER S WORKING INTEREST OWNERSHIP IN A FACILITY AND THE VOLUME THROUGHPUT IN A YEAR LESS THE AMOUNTS PREVIOUSLY PAID OR RECEIVED.
ANNUAL THROUGHPUT ADJUSTMENTS ARE COMPLETED TO ENSURE THAT EACH OWNER IN A FACILITY PAYS THEIR EQUITABLE SHARE OF THE ANNUAL OPERATING COSTS AND RECEIVES REVENUE BASED ON THEIR AVAILABLE CAPACITY UTILIZED BY OTHERS. ANNUAL OPERATING COSTS BILLED ARE REVERSED AND RE- INVOICED TO THE FACILITY OWNERS BASED ON THROUGHPUT AFTER REDUCING THESE COSTS BY THE OPERATING COMPONENT OF FEES RECOVERED FROM CUSTOM USERS (THIRD PARTIES). OWNERS THAT EXCEED THEIR MONTHLY OWNERSHIP SHARE OR CAPACITY IN THE FACILITY ARE BILLED A CAPITAL FEE THAT IS PAID TO THE OTHER OWNERS WITH AVAILABLE SURPLUS CAPACITY. IN ADDITION, THE CAPITAL COMPONENT REVENUE COLLECTED FROM CUSTOM USERS WILL ALSO BE PAID TO OWNERS WITH AVAILABLE SURPLUS CAPACITY.
1) TOTAL FEE IS COMPRISED OF A CAPITAL COST COMPONENT AND OPERATING COST COMPONENT 2) OPERATING COST COMPONENT GETS CREDITED TO OWNERS BASED ON THEIR THROUGHPUT PERCENTAGE IN THE FACILTIY 3) CAPITAL COST COMPONENT GETS CREDITED TO OWNERS BASED ON THEIR AVAILABLE SURPLUS CAPACITY IN THE FACILITY RELATIVE TO THE OTHER OWNERS IN THE FACILITY
1) GET A COPY OF THE CO&O (OWNER) OR PROCESSING AGREEMENT (NON-OWNER) FROM JV OPERATIONS 2) VERIFY THAT THE VOLUMES ALLOCATED TO YOU ARE ACCURATE AND COMPLETE **ENSURE THAT YOUR VOLUMES DO NOT INCLUDE JV PARTNERS BEHIND YOU 3) VERIFY THE OPERATING COSTS (OWNED FACILITIES), REVENUES PREVIOUSLY RECEIVED, FEES PREVIOUSLY CHARGED (NON OWNED FACILITIES) 4) VERIFY FACILITY CAPACITIES USED AND EXCESS CAPACITY CALCULATIONS (OWNED FACILITES)
THERE IS A CLOSE TIE BETWEEN EQUALIZATIONS AND GAS COST ALLOWANCE (GCA). NOT BOOKING TO APPROPRIATE ACCOUNT MAY LEAVE MONEY ON THE TABLE IN YOUR GAS CROWN ROYALTY DEDUCTIONS AND/OR CAUSE CONFUSION AS TO WHICH FEES ARE ALLOWABLE. BOOKING SUGGESTIONS: -OPERATING COSTS ADJUSTMENTS TO EQUALIZATION ACCOUNT -EXCESS CAPACITY CHARGES BOOKED SEPARATELY -DEBIT AND CREDIT REVENUE ADJUSTMENTS AT OWNED FACILITIES BOTH GET BOOKED TO REVENUE ACCOUNT -ADJUSTMENTS TO THIRD PARTY FEES GET CODED TO 13THMONTH ADJUSTMENTS ACCOUNT -SEGREGATE OIL RELATED FEES FROM GAS RELATED FEES IN CHART OF ACCOUNTS -ELIMINATE CHARGING YOURSELF FEES WHEN BILLING FEES TO PARTNERS BEHIND YOU
1) TREND TOWARD NOT PAYING EQUALIZATIONS THAT ARE STATUTE BARRED (4 YRS FOR SOME AND 2 YEARS FOR OTHERS) 2) FACILITY OPERATORS ARE CONTRACTUALLY OBLIGATED TO DO THE EQUALIZATIONS 3) HAVE TO CONSIDER THIRD PARTIES WHO WERE ORIGINALLY MISSED BEING CHARGED FEES AND MAY NOT BE WILLING TO PAY NOW 4) TREND TOWARDS OPERATORS NOT PAYING OUT CREDITS UNTIL ALL DEBITS HAVE BEEN COLLECTED
