Solution in detail oil and gas hydrocarbon accounting for oil and gas

Solution in Detail
© 2013 SAP AG or an SAP affiliate company. All rights reserved.
Oil and Gas
Hydrocarbon Accounting for Oil and Gas
Executive Summary Solution Overview Contact Us

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© 2013 SAP AG or an SAP affiliate company.
All rights reserved.
Streamlining Hydrocarbon Accounting
Financial reporting organizations, regulatory
agencies, and royalty owners are demanding
more information from oil and gas producers.
The desire for more information is coming from
everywhere – and the ability to audit data
integrity is ever-increasing.
These challenges require oil and gas
companies to provide well-level hydrocarbon
accounting within contractual requirements.
These demands on oil and gas companies
require processes for every hydrocarbon
transaction. This gives a multitude of stake-
holders the sustainable and transparent
information they need – and want.
Of decision makers think that
access to the right information
at the right time is critical to
their business
Source: SAP Performance
Benchmarking
It can be challenging to maintain accurate records of expenditures and revenues
for partners and royalty owners. By streamlining hydrocarbon accounting
processes, oil and gas companies can gain the visibility they need to accomplish
this task.
Enhanced Visibility
Refined Hydrocarbon
Accounting
SAP Innovations
A Source for Transparency
80%

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SAP software for production revenue accounting
helps integrate business processes, from field
measurement recognition to royalty owner
disbursement. The software can be scaled to
cover a network ranging from a single well to
1,000 units.
Integrated marketing and ownership processes
can reduce the amount of accounting master
data.
The ability to handle processed and unprocessed
gas enables accountants to perform dual cal-
culations and maximize royalty payments. The
pricing component allows for fixed or indexed
pricing to accommodate greater flexibility when
negotiating contracts.
Allowable tax abatements for special circum-
stances are date effective, resulting in less
master data work. The software also provides
transparency into value calculations, tax
incentives, royalty abatements, and settlement
diversity of owners.
Joint venture accounting is a core function of
the SAP ERP Financials solution. It provides
the transparency needed to accommodate
partner billings, cash calls, and payout functions.
Accounting with Better Visibility
Improve cost transparency, production measurement and allocation, and revenue
distribution for a faster, more accurate financial close. By maintaining accurate
accounting records and distribution, companies can comply with contractual
agreements and royalty reporting requirements.
Best-Run Oil and Gas
Enhanced Visibility
Refined Hydrocarbon
Accounting
SAP Innovations

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SAP software can enhance visibility into production and allocation data, reconcile
venture accounting, and support legal and regulatory compliance. With improved
insight into cost, production measurement and allocation, and cash management,
the financial close can become more accurate and faster. In addition, companies
can better comply with production-sharing and revenue agreements, royalty
reporting requirements, and timely invoice-handling.
Gaining Transparency with One Source
 Integrate processes, from production volumes to royalty distribution
 Reduce rework associated with erroneous or incomplete data
 Automate prior period-adjustment processing for faster transactions
 Gain real-time financial visibility through integration of financial and cost controlling modules
Outstanding product
receivables decrease when
sales metrics can be analyzed
in various ways
Benchmarking
Enhanced Visibility
Refined Hydrocarbon
Accounting
SAP Innovations

5 / 23
Database and technology solutions,
powered by the SAP HANA platform, help
upstream oil and gas producers manage
and process high volumes of accounting
data faster. With higher transactional speed,
companies can streamline and optimize
process execution and satisfy the needs
of their employees.
Analytic solutions offer deeper analysis and
understanding of transactional patterns –
driving streamlined analysis and smarter cost-
management decisions.
Mobile solutions keep personnel in touch with
critical corporate information at all times. This
helps reduce effort when employees are facing
critical deadlines and are waiting for internal
systems to finish and confirm results.
SAP Innovations
With SAP software, hydrocarbon producers can determine the actual amount
of hydrocarbons sold, separate working interest from royalty interest, calculate
tax burdens, and disburse payments. They can also reprocess closed period-
accounting data when changes in measurements or ownership changes occur.
Enhanced Visibility
Refined Hydrocarbon
Accounting
SAP Innovations

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Streamlined Accounting Processes
Revenue
Determine contract quantities of hydrocarbons sold within a given period. Split
volumes between working and royalty owner interest, before calculating tax burdens
and disbursing payment obligations.
Land and Lease
Manage land and lease assets for greater profitability. Integrate financials with
core enterprise resource planning (ERP) functions.
Joint Venture Accounting
Improve joint venture partner relationships through traceable billings, cash calls,
and reconciled partnership accounts.
Authorization for Expenditures (AFE) and Assets
Enhance oversight over capital projects and transparency into cost collection on
a project and category basis.
Solution Overview
Why SAP?
Digital Oilfield Operations
Revenue
Joint Venture
Land and Lease
AFE and Asset Management

7 / 23
Oil and Gas Process Map
Solution Overview
Why SAP?
Revenue
Joint Venture
Land and Lease
Reporting
Operations
Accounting
AFE and Asset
Management
RevenueJoint VentureLand and Lease
Project
Management
Land
Management
Venture-
Related
Procurement
Field Data
Capture
Project Cost
Settlement
Compliance
Reporting
Owner
Reporting
Project
Accounting
Exploration
Lease
Accounting
Manage
Equity
Group
Cost
Capturing
and Splitting
Partner
Billing
PSC*
Accounting
Venture Partner
Management for Billing
and Cash Call
Volumetric Allocation
and Valuation
DOI and
Owner
Entitlements
Tax
Calculations
Revenue Distribution
Reporting Reporting
Billing
Documents
and Audit
Reports
PSC*
Reports
* Production Sharing Contract

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With SAP software, hydrocarbon producers can
quantify revenue accounting data to determine
the actual amount of hydrocarbons sold,
separate working interest from royalty interest,
calculate tax burdens, and disburse payments.
Integration with compliance reporting functions
helps ensure that obligations for transparent,
compliant reporting are met. Producers can
even automatically reprocess closed account-
ing data when hydrocarbon measurements or
ownership changes occur.
As a result, royalty payments are calculated
and paid faster and more accurately, in
accordance with legal and regulatory
requirements.
Determine revenue quantities
and owner-level values for
hydrocarbons sold. Adhere to gas-
balancing provisions by tracking
producer overages and shortages
and providing compliant reporting
by agreement.
Revenue
80%
Of decision makers think that
access to the right information
at the right time is critical to
their business
Benchmarking
Capabilities
Revenue
Benefits
Solution Overview

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SAP software for contractual allocation helps
determine overage and shortage positions
when producers take products in kind. It
maintains acceptable tolerance ranges for
pipeline measurements against field
measurements.
Valuation and revenue distribution enables
flexible pricing of contract volumes for the
purpose of revenue valuation for all owners on
the property division of interest. Contract cross-
referencing with well completions and divisions
of interest provides the controls necessary for
accurate accounting.
Comprehensive master data functionalities help
minimize severance tax liability by enabling
severance tax abatements offered by taxing
authorities.
This integrated approach pushes accounting
results to reporting systems, where trans-
actional processing occurs for regulatory
compliance. Reporting integration maintains
specific master data to convert from objects
in SAP software to agency objects and
terminology.
This function generates compliant reporting
with processed data.
Increase the Accuracy of Period Data
Capabilities
Revenue
Benefits
Solution Overview

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Complete integration – from production net-
work modeling and measurements to revenue
recognition, compliance, and owner reporting –
enables full clarity regardless of where a user
views the data in the process. Validating
transactional data at the time of entry and
cascading data across multiple processes
enables consistent, transparent results.
With frequent changes to measured quantities
of natural gas and ownership revisions,
automated processes for handling prior-period
adjustments allows quick revisions.
The ability to process transactions in trial mode
allows revenue accountants to review potential
results. Then, they can determine whether the
information is correct and ready to be posted or
if further investigation is necessary.
Integrated processes give users confidence
that final reporting is consistent, and frees up
their time by not having to reconcile independent
work processed from data passing between
siloed processes.
Support a comprehensive, collaborative
process to respond to changes in
measurements, prices, tax rates, or
ownership. This enables hydrocarbon
accountants to focus on results, instead
of data entry.
Better Insight into Accounting Results
Capabilities
Revenue
Benefits
Solution Overview

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By connecting land management processes
with exploration processes, producers gain
improved visibility into their land and lease
contracts.
That enables land and lease managers to keep
track of lease renewal dates, maintain producing
properties, and work with explorers to help
ensure on-time lease payments and renewals.
This can extend new opportunities for mineral
ownership and rights of way needed for explo-
ration and development activities. Integration
with financial transactions of ERP helps ensure
that assets are properly accounted.
Oversee land and lease assets for
greater profitability, where all financial
implications are integrated with core
ERP functionalities.
Land and Lease
Capabilities
Land and Lease
Benefits
Solution Overview

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Integrating third-party land and lease manage-
ment software with SAP software for production-
revenue joint-venture accounting and core
financials enables all lines of business to share
transactional data. This helps ensure that
financial activities across process boundaries
are connected and transparent.
Sharing of vendor master files across solutions
minimizes the amount of maintenance required
for name and address changes and 1099
reporting.
Capturing and recording leases can help
enhance management of undeveloped acreage,
right-of-way, and farm-outs and farm-ins.
Viewing, analyzing, and reporting lease rental
obligations can help land managers determine
whether to continue a lease through a rental
payment or terminate contractual rights.
Connectivity to geographic information systems
(GIS) enables visualization of undeveloped
land positions on maps.
Manage Access to Exploration Acreage
Capabilities
Land and Lease
Benefits
Solution Overview

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Integration of land-lease systems with SAP
software provides greater visibility into
exploration opportunities enterprise-wide.
It also helps ensure that information across
work processes is not duplicated – leading to
consistent, transparent data for more informed
decision making.
Land-lease connectivity with producing venture
system enhances transparency into the last
well in all lease situations. With GIS integration,
lease managers can even overlay contract
boundaries on maps.
Sharing owner master data helps reduce the
cost of name and address changes, as well as
1099 annual reporting on rental and royalty
payments.
Manage a comprehensive, collaborative
process for managing the acquisition
and maintenance of land leases and
right of ways. Integrate core financials
in SAP software to properly account for
these activities.
Improved Insight into Unexplored Assets
14%
Lower IT spend in the
business units that have
incentives aligned with the
adoption of standard and
common solutions
Benchmarking
Capabilities
Land and Lease
Benefits
Solution Overview

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Integrating finance, controlling, project system,
plant maintenance, and materials management
can help accountants accept transactions for
billing purposes as defined by a joint venture
partnership agreement.
With flexibility in events that initiate billing,
operators can issue partnership cash calls
based on pending venture expenditures.
They can also produce partner billings with
the receipt or invoice date of the goods or
service received. And by maintaining different
ownership percentages throughout the lifecycle
of a venture, nonconsent situations are easily
managed. Also, the operator has the flexibility
to recover overhead reimbursements and
burden reimbursements.
Access ownership details for settlement
of owner costs throughout the lifecycle
of a venture. Accommodate partner
election to go nonconsent and provide
for payback-period calculations.
Joint Venture Accounting
76%
Higher margins, where
the finance system gives
historical and future views
into financial and operational
performance
Benchmarking
Capabilities
Joint Venture
Benefits
Solution Overview

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Joint venture accounting enables an operator
to manage ownership percentages of joint
ventures throughout the lifecycle of activities.
Features of the software facilitate ownership
changes associated with business events,
such as nonconsent clauses and before and
after casing point elections. With effective-
date divisions of interest, handling ownership
changes are no longer a problem for
accountants.
Through defined billing processes, the operator
can determine whether to bill partners on a
detail or summary basis by account.
When needed, the operator can cash-call
joint venture partners for future expected
expenditures in accordance with the terms
of the joint venture agreement.
Through various types of overhead recoveries
prescribed by industry accounting procedures,
the operator can recover administrative cost
throughout the lifecycle of its joint venture
activities.
SAP software enables all this and supports
industry-standard JADE reporting typically used
by joint venture auditors.
22%
Lower audit costs where
organizations use automated,
instead of than manual
controls
Benchmarking
Manage Joint Venture Partnerships
Capabilities
Joint Venture
Benefits
Solution Overview

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Integrating joint venture accounting with
business transactions reduces exposure to
incomplete partner billings. When activated,
joint venture accounting interacts with accounts
payable, material movements, and AFE
processes to initiate joint venture determination
at the time of the initial transaction.
Joint venture accounting enables accountants
to close financial books faster with a more
accurate reflection of the financial activities
of the period. In addition, transactions from
core ERP and processing becomes more
transparent and timely.
Transactions can be facilitated across multiple
processes relevant to joint venture accounting,
based on cost-center relationships and
divisions of interest.
The ability to maintain different types of divi-
sions of interest across the complete lifecycle
of an asset provides flexibility and better work
processes.
Bring together partner transactions
from materials management, project
system, controlling, and accounts
payable.
Shared Master Data and Integration
with Core Financials
>100
Number of oil and gas
companies worldwide that use
joint venture accounting
software from SAP
Benchmarking
Capabilities
Joint Venture
Benefits
Solution Overview

17 / 23
Visibility into project cost and activities
accelerates reconciliation of cost variances
against budget.
Categorizing activities facilitates generation
of business process-specific authorizations
for expenditures – lowering the overall cost
of managing multiple projects.
Streamlining authorization approvals lowers
the overall cost of managing capital projects.
And tight integration with asset accounting
processes gives financial areas the ability to
close projects quickly and accurately.
Improve oversight over multiple capital
projects and provide transparency into
cost collection on a project and category
basis. This can be done to generate
reporting for internal stakeholder and
partners in accordance with joint
venture accounting procedure.
7%
Lower variance between
budget and actual cost where
asset management goals,
objectives, and metrics are
aligned with business metrics
Benchmarking
Capabilities
Benefits
Solution Overview

18 / 23
Core ERP tools from SAP software for asset
and portfolio management enables the setup
and maintenance of capital project tracking.
The flexibility of project system functionality
helps companies create templates for various
types of projects by providing consistency
throughout the enterprise.
The software‟s attributes for capturing activities
and cost objects integrates that data with joint
venture accounting. As a result, accountants
can split costs, when appropriate.
Settlement rules for projects are flexible and
allow systematic determination of intermediate
project cost. This provides for systematic
transfer of expenditures, from work-in-progress
accounts to the appropriate asset or expense
for monthly financial accounting.
A comprehensive view of how costs compare
with budgets improves compliance with
reporting requirements mandated by partners.
22%
Higher asset productivity
where the lifecycle is
optimized through planning
and utilization
Benchmarking
Monitor Individual Activities
Capabilities
Benefits
Solution Overview

19 / 23
Eliminating siloed modules for project and
financial accounting enables cost-tracking
from the source of expenditures and material
transfer orders. It also reduces enterprise expo-
sure from missed categorization of cost and
inaccurate financial reporting of expenditures.
Efficiency is gained by standardizing project
templates organization-wide, based on types of
capital projects. Monthly clearing of project cost
from work-in-progress accounts to the proper
financial account minimizes the risk of
incomplete closure of project cost at the termi-
nation of a project.
The flexibility of enterprise asset management
for fixed asset accounting supports industry
depreciation, depletion, and amortization require-
ments. This enables fulfillment of external financial
reporting requirements for oil and gas assets.
Statistical entries for production revenue ac-
counting support decrementing hydrocarbon
reserves by generating quantities produces as
part of monthly depletion calculations.
Simplify the AFE process by tightly
integrating capital project cost with
asset management and financial
accounting.
Unification of Asset Accounting
17%
Higher asset return when
management is integrated
with inventory, purchasing,
engineering and finance
Benchmarking
Capabilities
Benefits
Solution Overview

20 / 23
Oil and Gas Value Map
SAP solutions address key requirements for integrated digital oilfield
operations.
Solution Overview
Why SAP?
Revenue
Joint Venture
Land and Lease
Data Collection
and Validation
Data
Surveillance
Data
Governance
Production
Network
Modeling
Performance
Analysis
Production
Allocation
Integrated
Planning
Source to Pay
(Operator)
Field
Confirmations
Order to Cash
(Service
Company)
Resource
Scheduling
Revenue
AFE and Asset
Management
Land and Lease Joint Venture
Field Data
Capture and
Surveillance
Integrated
Planning and
Performance
Analysis
Field Execution
Hydrocarbon
Accounting

21 / 23
Why SAP?
Comprehensive software for the oil and gas industry breaks down information
silos and provides closed-loop views of information. Transparency across the
entire business allows broader access to information and supports quicker
decision making.
Tightly Integrated, End-to-End Business Solutions
SAP offers the most comprehensive portfolio of software solutions for the oil and gas industry
that enables organizations to focus on their key business processes.
Leveraging Key Breakthrough Innovations
SAP software solutions are based on the industry‟s most innovative technology foundation
including the SAP HANA platform, mobile solutions, analytics, and cloud solutions. This enables
businesses to enhance process optimization and efficiency at the lowest possible cost.
Delivery of Value to Oil and Gas Companies for 40 Years
Some of the world„s leading oil and gas companies – big and small – rely on SAP software
and services to enable every aspect of their operations.
Solution Overview
Why SAP?
Revenue
Joint Venture
Land and Lease

22 / 23
Benchmark Your Performance
Position your organization for dominance in this new economy with the business performance
benchmarking program from SAP – available free to SAP customers and select prospects.
The SAP benchmarking program has helped more than 3,000 organizations assess their
strengths, uncover areas for improvement, and identify best practices and IT strategies that
generate clear, tangible value – not someday, but today.
Go Live in Weeks
Here‟s the fastest way to run your business better: our rapid-deployment solutions. In one
package, you get everything you need to be up and running quickly – including preconfigured
software and implementation services – in just weeks. With a defined scope and predictable
costs, there are no surprises.
Join Your Community of Practices
Every day, SAP Community Network (SCN) changes the way that thousands of SAP users work.
It lets members help one another solve problems, learn, and invent new ways to get things
done – faster. Find out how to connect with people, content, and resources.
Find Out More About How Your Organization Can
Become Best-Run
Visit valuemanagement.sap.com >>
Visit sap.com/solutions/rds >>
Visit scn.sap.com >>

Solution in Detail
Oil and Gas
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Solution in detail oil and gas hydrocarbon accounting for oil and gas