Manage your financial Joint Venture processes

What is Joint Venture Accounting?

 In the oil and gas industry, certain ventures are considered high risk, demanding extensive capital investment and a long payback period. To minimize risks, companies develop partnerships called joint ventures.  A joint venture consists of an operating partner (operator) and one or more

non-operating partners, who combine monetary or personnel resources to
share a project’s expenses and revenues.  The operator manages the venture, arranges venture activities, and

maintains accounting records. The operator remits venture expenses,
collects revenues, and distributes these to the partners, according to their ownership shares.  This process is known as Joint Venture Accounting (JVA).

© SAP 2007 / Page 17

What is Joint Venture Accounting?
Companies can share:  Risk  Investment  Resources
Operating Partner
Plan future activities of venture Manage day-to-day activities of venture Maintain accounting records for venture

Non-Operating Partner
Maintain accounting records for their own share of the venture Settle accounts with the operating partner, according to the conditions of the venture

Calculate partner shares of venture
expenditure and revenue Report venture activity (P&L) to partners

Joint Venture 1 Joint Venture 2
Entity B

Joint Venture 3
Entity A
© SAP 2007 / Page 18

Entity C

What is SAP JVA?

 SAP designed JVA especially for joint venture operations.  SAP JVA captures all expenditures and other joint venture transactions by

using functions from Financial Accounting (SAP FI), Controlling (SAP CO),
Asset Management (SAP AM), Materials Management (SAP MM), Plant Maintenance (SAP PM), and Project System (SAP PS).  By working closely with customers and implementation partners, SAP ensures that JVA facilitates efficient management of joint ventures.

© SAP 2007 / Page 19

Why SAP JVA?  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. © SAP 2007 / Page 20 .

SAP JVA Features and Benefits  Detailed joint venture data capture in real time  Cash calls to/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 2007 / Page 21 .

with an option to produce balanced venture books Cash Calls  Request cash payments from partners for future venture operations Partner Billing    Calculates partner shares for venture expenses and revenues Monitors partner cash calls and receivables Produces a partner bill containing all relevant information Overhead  Calculates different types of overhead.SAP JVA Functions Joint Venture Data Capture  Captures and codes all transactions. inventory movements and allocations. as agreed in the JOA © SAP 2007 / Page 22 . including vendor invoices.

© SAP 2007 / Page 23 . to the non-operating partners. and related expenses) to cost centers or projects throughout the allocation cycle. according to their equity shares.SAP JVA Functions Allocations  Distributes billable and non-billable costs (such as facility. Multi-Currency Processing  Supports the multi-currency needs of typical venture activities Cutback  Cutback allocates all operating costs. This process typically occurs at the end of the accounting period after all transactions are posted. Suspense Processing  Suspense processing allows you to continue regular processing in the event of a dispute or some other unscheduled disruption. payroll. carried by the operator during the accounting period.

facilitating prior-period and pre-cutback equity changes. and redetermination. Partner Netting  Partner netting allows you to calculate the sum of a partner’s open expenses and cash calls within the venture to a single residual entry of outstanding expenses. You can send different levels of supporting information with the invoice. and to issue cash calls. Joint Venture Billing  Joint venture billing allows you to invoice partners for expenditures and revenues. You can then post that entry to the partner’s accounts receivable account for billing.SAP JVA Functions Equity Adjustment  Equity adjustment covers several business processes that require the creation of new equity groups and different handling for historical cost. farm-out. SAP JVA equity adjustment capabilities provide functions that cover farm-in. © SAP 2007 / Page 24 .

In SAP JVA. distributions. rather than at historical cost. and allocations.SAP JVA Functions Asset and Material Transfer  Asset and material transfer capabilities allow you transfer assets and materials to joint venture properties at the current replacement price. if necessary. © SAP 2007 / Page 25 . you can allocate various costs among multiple cost objects for distribution to the ventures. and to set up a carried interest arrangement. 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. Controlling  Controlling enables you to process assessments.

to balance the document by venture. non-operated invoices with SAP accounts payable functions. By identifying these relationships. If a document without balancingentries-by-venture is posted to the joint venture ledger. SAP JVA automates processing of inter-company joint venture transactions. You can record these invoices online. cash call features are available for nonoperated ventures at the venture and project level. Balanced Books By Venture  Balanced books by venture allows you to produce balanced financial statements on a venture by venture basis. Inter-Company Functions  Inter-company functions allow you to book inter-company entries on the books of the operating partner and any of its affiliated businesses. © SAP 2007 / Page 26 . In addition. through inter-company mappings of accounts and other relevant objects.SAP JVA Functions Non-Operated Ventures  Non-operated venture processing facilitates integrated handling of incoming. the data capture process creates an inter-venture booking.

SAP JVA Functions Bank Account Switching  Bank account switching is common practice outside North America. notifying the bank to make all required transactions for the movement of cash between accounts. SAP JVA also produces correspondence. In addition. Depending on the venture. bank account switching produces all required settlement documents. SAP JVA determines the bank account from which an invoice is paid. Audit Support  Audit support allows you to give non-operating partners detailed accounting transaction records in an electronic format to assist transaction audits. JADE requirements are also supported. and can calculate all applicable interest. Multi Company Code  Range of company codes per selection & Output enhancements © SAP 2007 / Page 27 . These records are based on operator-defined selection criteria and can be restricted at multiple levels. Large ventures are funded from one or more dedicated venture bank accounts.

project Partners and working interests Associated ventures Allowable overheads and their treatment  Non-consent penalty percentages Definitions Interests © SAP 2007 / Page 28 . property.Joint Operating Agreement (JOA) A JOA is a contract between venture partners that specifies the following:     Operator of well.

ET.SAP JVA Business Objects: Venture. EQTYPE 3 Production 2002 33 1/3 B C 33 1/333 1/3 33 1/3 EG1 A 50 % B 25% D 25 % A 50 % C B 25% Ventures associate Equity Types and Equity Groups to define a specific joint operation or purpose 2003 25 % EG2 EG4 A A 25 % D 25 % C 25 % B 25% A 75 % C 25% 2004 EG3 © SAP 2007 / Page 29 33 1/3 B C 33 1/3 33 1/3 EG5 EG6 . EG Venture A Joint Venture Life Cycle 2002 – 2004 EQTYPE 1 Engineering Design A 2005 ..2027.2007 EQTYPE 2 Construction 2007….

SAP JVA Business Objects: Five Venture Types  Operated (no tax)   Operated by the company managing SAP JVA You cannot assign a tax code to this type of venture  Operated (with tax)   Operated by the company managing SAP JVA You can assign a tax code to this type of venture  Non-Operated   The company managing SAP JVA holds a non-operated venture share This company is billed by the operator for its share of venture expenses  Non-Operated On-Billing  The company managing SAP JVA sells part of its non-operated share of the venture to third parties  Corporate Venture  The company managing SAP JVA holds a 100% interest © SAP 2007 / Page 30 .

Joint Venture Integration with Cost Objects New Processing Plant EQTYPE 1 Venture A EQTYPE 2 Construction EQTYPE 3 Production Engineering / Design Cost centre A 33 1/3 B C 33 1/333 1/3 33 1/3 EG1 Valid A 50 % D B 25% 25 % A 33 1/3 B 50 % 25% 3 D 25 % EG2 A A 75 % C 25% C EG4 A B 33 1/3 33 1/ D 25 % C 25 % A 25 % B 25% Construction Project EQTYPE 1 Engineering Design EG3 . EG5 EG6 Venture A EQTYPE 2 Construction EQTYPE 3 Production Project A 33 1/3 B C 33 1/333 1/3 33 1/3 EG1 Valid A 50 % D B 25% A 50 % B 25% 3 C 25 % 25 % EG2 A A 75 % C 25% EG4 A 33 1/3 B C 33 1/ 33 1/3 A 25 % D 25 % C 25 % B 25% EG3 EG5 EG6 © SAP 2007 / Page 31 .

Joint Venture Integration with Cost Objects Cost Center Internal Order Asset Venture 1 Plant 2 Project Prod Order PM Order © SAP 2007 / Page 32 .

Joint Venture Coding for Cost Objects Cost Object Project Cost centre Internal Order Joint Venture Equity Type Recovery Indicator JV Object Type Plant Maintenance Order Production Order Network Order JIB/JIBE Class JIB/JIBE Subclass A © SAP 2007 / Page 33 .

Recovery Indicator Identifies category of a joint venture transaction  Indicates whether a particular expense is shared by venture partners  Used to select data for reporting to venture partners  Used to distinguish between joint and own expenditures Recovery indicator assignment & determination: FI User Entry CO MM Document Type G/L Account & Cost Element Cost Object Default (Corporate) © SAP 2007 / Page 34 .

Venture EqG RI 1 1 2 3 4 Vendor Vendor Cost 1 Cost 2 Tax CC-1 CC-2 CC-1 CC-2 CC-1 JVI001 JVI002 JVI001 JVI002 JVI001 A01 A01 A01 A01 A01 BI BI BI BI BI Amount .47.50 .50 PS HR Accounting Interface PP AM 4 Tax CC-2 JVI002 A01 BI 7.70.00 17.Joint Venture Integration and Interface Joint Venture Document FI CO MM SD PM Itm Account Cost Obj.50 JV Interface Special Ledger Interface FI DATA GLT0 JV DATA JVT01 BILLING JVT02 CUSTOM DATABASE © SAP 2007 / Page 35 .00 10.00 40.00 60.50 CC-1 CC-2 60. Amount 1 2 3 4 Vendor Cost 1 Cost 2 Tax -117.00 40.00 Accounting Document Itm Account Cost Obj.

Example The expenses are assigned to the JV partners via the cost object assigned to the expense line items Post Vendor Invoice Cost Centre Assignment JV Document Accounting Doc © SAP 2007 / Page 36 .Joint Venture Vendor Invoice Posting .

Joint Venture Asset Posting .Example JVA derives venture coding for an asset using the cost centre entered on the asset master record Vendor Invoice Asset Master JV Document Asset Document © SAP 2007 / Page 37 .

Example 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. Goods Receipt MM Assignments Material Document JV Document JV Document Accounting Doc © SAP 2007 / Page 38 .Joint Venture Material Posting .

Periodic Processes Foreign Currency Valuation Cost Transfers Cost Allocation & Settlement Overhead Calculations (PCO) Equity Adjustments Cutback Joint Venture Close Partner Netting Final Settlement Corporate Close Billing © SAP 2007 / Page 39 .

350 Assessment A 140 40% Light & Heating Vehicles Repairs & Servicing Travelling Hotels Entertaining Telecoms Mail & Carriage Assessment A Total 140 Total 0 40% Total 140 © SAP 2007 / Page 40 . including:    Substitution of the recovery indicator (recovery indicator manipulation) Allocation of secondary costs Re-run of settlement Unallocated Costs Allocation (via secondary cost element) Internal CO only Distribution (through original cost element) Internal CO only Cost Object B Materials Internal Labour External Labour Staff Salaries Rent & Rates Light & Heating Vehicles Repairs & Servicing Travelling Hotels Entertaining Telecoms Mail & Carriage 8 12 40 80 Cost Object A Materials Internal Labour External Labour Staff Salaries 100 200 Cost Object B Materials Internal Labour External Labour Staff Salaries Rent & Rates Rent & Rates Light & Heating Vehicles Repairs & Servicing 20 30 Travelling Hotels Entertaining Telecoms Mail & Carriage .Assessments & Distributions Cost allocations are based on R/3 CO functions with JVA required enhancements.

Equity Changes & Adjustments  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 Operator Partner A 30% 27% Partner B 43% © SAP 2007 / Page 41 .

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 Set project in suspense Project Suspense Selection Company Code Venture GBU1 JV0001 to JV9999 Post Costs Accounting Document Itm Account 1 O'head 2 O'head JVA Project Suspense Cost Obj.00 3 O'Head CC-1 JVI001 A01 BS 0 Posting Fiscal Year Period Posting Date 2002 12 31. Venture EqG RI Amount 1 O'Head Admin C00001 A01 NB .00 Joint Venture Document Itm Account Cost Obj.00 2 O'Head CC-1 JVI001 A01 BI 50.00 CC-1 50. Venture EqG RI Amount 1 O'Head Admin C00001 A01 NB .00 2 O'Head CC-1 JVI001 A01 BI Joint Venture Document Itm Account Cost Obj. Amount Admin .00 Options Test run © SAP 2007 / Page 42 .

Overheads International – Parent company overhead  US/Canada – Well related allocations  Cost Stepped Rate Rule 1% GBP 250 000 Overhead GBP 140 000 GBP 10 000 2% GBP 2 800 GBP 10 000 GBP 0 5% GBP 500 © SAP 2007 / Page 43 .

Venture A Cutback Company Code 50 % Partner B EG2 25 % ET1 Partner D 25 % Net Operating Exp / Rev 50 AR / AP AR / AP Partner D 25 Partner B 25 © SAP 2007 / Page 44 .Cutback Processing Gross Operating Exp / Rev 100 Cost Object RI = Bill Venture A The cutback process allocates JV partner’s expenses or revenues according to their working interest ownership.

00 100.Cash Calls Cash Call Partner C Partner A 100 600 Accounts Rec.00 300...74 23..Cash Calls Accounts Rec.Cash Calls Partner B 300 © SAP 2007 / Page 45 .79 Accounts Rec.00 Lcurr Amt 46.37 7.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 Cash Call Request:   Gross to venture/project Net to venture/project/partner FI Document Partner Shares Venture JV0001 EqG A01 FCurr NOK Partner JVGBU1 JV5001 JV5101 FCurr Amt 600.

Partner Adjustments Cutback Invoice Paid Cash Calls Partner Payments Cash Calls © SAP 2007 / Page 46 . Suppl Detail Invoice JV Summary Ledger Cutback JV Billing Ledger … JV Integration Mgr. Accounts Receivable … JV Billing creates various customized billing documents to send to your JV partners Billing Statement Exp. Suppl Expenditure Detail Inv. JV Integration Mgr.Joint Venture Billing Payroll Vendor Invoices Internal Allocations Orders Costs JV Integration Mgr.

Inter-Company Ventures Affiliated Inter-Company Setup FI Document Cutback  CO To Affiliate: INVOICE Cutback creates A/P entries to operator on the books of the affiliated partner as configured in SAP JVA and SAP FI Intercompany Processing FI A/P  Cash Call Cash Calls Gross cash calls create A/P entries on the books of the affiliated partner. as defined in configuring SAP JVA and SAP FI © SAP 2007 / Page 47 .

Project.Material Management Features   Stock help corporate or per venture Stock prices   Moving average charged to venture and operator Current replacement price (CRP) invoked to add stock handling fee  Plant or valuation definition Plant to Cost Center. Asset Company Inventory at Moving Average Price Joint Venture Billing CRP Joint Venture Billing CRP Company Proj/Asset at Moving Average Price © SAP 2007 / Page 48 . Order.

JV Partner Auditing  Standard JVA Reports:  Gross billable/all by venture/account  Remaining cutback by cost object     Gross billable/all by cost object Gross billable/partner net by cost object   Posted suspense overview Gross non-operated by cost object Gross billable/all by cost object foreign currency Venture/equity group/billing indicator  Gross billable/partner net for JIB  Partner/billing indicator  Billing Reconciliation Extract: Reconciliation Statement Exp. Suppl Expenditure Detail Inv. Suppl Detail Invoice Ledger 4B and 4D JVA Billing Balances Ledger 4A and 4C JVA Balances © SAP 2007 / Page 49 .

control the layout of the input screens Input form includes the SAP coding block information (account. defined in JVA configuration.Non-Operating Ventures  Online transaction for incoming invoices for non-operated ventures   Input forms. asset)   Incoming cash calls are handled with the cash call functions Non-operated venture processing is fully integrated with SAP accounts payable functions Invoice Accounts Payable Nonoperating net share R/3 Cash Call © SAP 2007 / Page 50 . cost object.

Cash and Banking 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 © SAP 2007 / Page 51 .

Where previously it could take two days to produce a monthly statement of accounts. this means considerable cost savings for Statoil.Success Story: Statoil. and is one of the world’s largest net sellers of crude oil. it now takes half that time and the data is of a much higher quality. The company plays a leading role on the Norwegian continental shelf. As either producer or operator it is involved in 20 oil and gas fields. Norway Statoil saves time and money with SAP‟s Joint Venture Accounting totalling 150 licences. “Our routines are undoubtedly more efficient and the accuracy of our accounting has increased since we started using SAP Joint Venture Accounting (JVA). Statoil has been a publicly listed company since 2001. and has substantial international operations. Obviously. Statoil has a presence in 28 countries.” Kjell-Petter Gilje Statoil ASA © SAP 2007 / Page 52 .com SAP for Oil & Gas Statoil ASA is one of the world’s largest offshore oil and gas companies.

and billing on a venture-by-venture basis.Key Benefits of SAP JVA  Integrates with FI. which streamlines workflow and greatly reduces errors  SAP JVA is the only SAP solution that allows you to track venture expenditures on a venture by venture and partner by partner basis. overhead analysis. all authorization for expenditures (AFEs) tied to JOA. MM.  Ensures full compliance with all standard overhead methods and calculations (US and international) © SAP 2007 / Page 53 . and AM.  SAP JVA allows you to view venture information in real time. not just at period end. cutback.  Provides complete drill down capability for reporting all ventures.

Thank you! © SAP 2007 / Page 54 .

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