GAAP O&G Joint Operations notes

GAAP Oil and Gas Joint Venture Accounting Notes

Legal Forms

Jointly owned corporations
Legal partnerships
Undivided interest

Properties included in Joint Operations

A single tract of land or a block of separate tracts on which working interests in oil, gas or other leases are held in undivided interest by multiple operators.
A pooled drilling and production unit created under expressed pooling provisions contained in the leases
Field-wide unitization

Joint Operating Agreement provisions

Definitions
Creation and effect of joint operation or unit
Interests of Parties
Plan of operations
Operator
Duties and obligations of operator
Relatioinship of parties
Effective date and term
Allocation of production
Taxes
Insurance
Development and operating costs
Clains and litigation
Force majeure
Notices
Other provisions

Accounting Porcedure Provisions of Joint Operating Agreements

General Provisions
1. Definitions
2. Statements and Billings
3. Advances and Payments
4. Adjustments
5. Audits
6. Approval by Non-Operators
Direct Charges
1. Rents and royalties
2. Salaries and wages
3. Employee benefits
4. Material pruchased or furnished
5. Transportation of employees and materials
6. Services
7. Equipment and facilities furnished by the operator
8. Damages and losses to joint property
9. Legal expenses
10. Taxes
11. Insurance
12. other necessary direct costs
Overhead - usually either a fixed rate basis or a percentage basis by category of well.
1. Overhead - Drilling and producing Operations
2. Overhead = Major Construction
3. Amendment of Rates
Pricing of Joint Account Material Pruchasses - "condition value"
Inventories - detailed records and periodic physical inventories
Note: Joint ventures agreements are for cost sharing. The operator should neither make a profit nor incur a loss

Recording Joint interest transactions

Reg. SX 4-10 requires owners of undivided interest to use "proporionate consolidation" accounting i.e. each owner picks up its proportionate share of each asset, liability, revenue and expense item. The venture is not regarded as a separate accounting entity so no balance sheet or P&l statement is prepared.