JVA101 Introduction to JVA v5
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JVA101 Introduction to JVA v5
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Copyright © Accenture and SAP 2014. All Rights Reserved. Accenture
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Upstream Production Operations
May 2014
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Copyright © Accenture and SAP 2014. All Rights Reserved. Accenture
and SAP confidential and proprietary material.
Irvan Wandana
Senior Manager in Accenture’s System Integration - SAP practice
based in Calgary, Canada
Ronan Fox
Senior Manager in Accenture’s TGP Energy practice working in
Houston, Texas
Your Presenters for Today
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Copyright © Accenture and SAP 2014. All Rights Reserved. Accenture
and SAP confidential and proprietary material.
Welcome to the Upstream Production Operations (UPO) Virtual
Learning Series!
Upstream Production Operations is a market-making offering
providing solutions and services for the end-to-end hydrocarbon and
revenue accounting process from wellhead to revenue
Johan Nell
Global Upstream Lead &
UPO Offering Lead
In the JVA 101 course, you will be provided an overview of joint
venture accounting (JVA), with specific examples. The course aims
to describe what JVA is, how it integrates with other SAP
processes, and the periodic processes in JVA.
Explain the features of JVA
Understand and explain the basic processes of JVA
Describe the integration of JVA with other SAP processes
Welcome
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and SAP confidential and proprietary material.
Agenda
Q&A
Questions & Answers
Contacts & Links
Contacts & Links
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and SAP confidential and proprietary material.
Key Terms
Key Term
Joint Operating Agreement (JOA)
A JOA is a formal agreement that specifies the conditions for joint
operation including the various development stages, such as
engineering and design, construction, and production.
Joint Venture (JV)
A JV is an association of two or more partners, formed to share a
venture’s risks, costs, and revenues. It provides partners with a
share proportional to their undivided interest in the
venture.
Equity Types
An equity type signifies a particular association of partners at a
particular stage of the JOA.
Equity Groups
An equity group represents an association of venture partners and
their interests. It may consist of some or all of the venture
partners.
Joint Venture Partners
JV partners are partners mentioned in the JOA with an undivided
interest in a venture
Recovery Indicators
Recovery indicators are assigned to cost objects to indicate if
expenses are billable to JVA partners.
Billing Indicators
Billing indicators identify the type of posting involved, including
cash call, normal expenditure, and audit adjustment.
JVA Overview
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Stages in the Oil and Gas Industry
There are three stages in the oil and gas upstream industry:
Exploration – looking for suitable resources to tap
Development – building of onshore/offshore platform for
extraction
Production – actual extraction of oil/gas
JVA Overview
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Challenges in the Oil and Gas Industry
The oil and gas upstream industry faces some unique
challenges:
High risk: There are risks due to various considerations such as
political, financial, and environmental impacts.
High capital expenditure: Exploration and development are very
capital-intensive stages.
Long payback period: The industry is characterized by a long time
frame before an enterprise recovers its initial investment and
turns profitable.
Due to these challenges, firms collaborate and form joint ventures
to mitigate their risks and ensure smooth operations.
JVA Overview
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and SAP confidential and proprietary material.
What is a Joint Venture?
A joint venture is a short duration business, entered into by two
or more enterprises without using the firm name.
Partners contribute funds for running the business.
Partners share profit/loss at an agreed ratio.
Generally, the profit/loss of the venture is computed on completion
of the venture, or at certain decided intervals.
Features of JVA
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Oil & Gas companies usually form JVs to:
Explore for producing Oil or Gas
Share the risk, costs, required skills, and profits derived
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Maintain venture accounting records.
Report venture activity to partners.
Non-operating Partner Responsibilities
Maintain accounting records for their own share of the
venture.
Settle accounts with the operating partner, according to the
conditions of the venture.
Composition of Joint Venture
Introduction to JVA
Note to Facilitator: Share an understanding on how Oil & Gas
ventures function and the features that characterize operating and
non-operating partners.
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JVA: Business Need
Factors that create a need for joint ventures:
Capital-intensive – Projects can be too big for a single company to
finance on its own.
Risk concentration – No single company would want to take so much
risk on its own.
Access to technology – Proprietary technology might need the owner
to have a stake.
Resource access – Legal owner of assets may not have enough
resources to tap them.
Supply chain optimization – Downstream supply chains may be
optimized across disparate geographies by pooling assets.
Regulatory requirements – In some countries, regulatory
requirements make it necessary for foreign players to partner with
local firms.
JVA Overview
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JVA Processes
JVA Overview
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On Line Update
JVA Overview
JVA – Structure
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Human Resources
Coding
Splitting
Clearing
JV
Database
JVA captures and posts JV financial information online. The
standard Finance (FI/CO) interface:
collects details of all accounting transactions
uses the information to prepare accounting documents
The JV interface:
uses the information to prepare a JVA document
The JVA document includes info about the venture, EG and recovery
indicator.
JV
Document
Joint Venture Accounting – Integration
Note to Facilitator: Discuss how the JVA captures and posts JV
financial information online.
Explanation: JVA captures and posts JV financial information
online. The standard Finance (FI/CO) interface collects details of
all accounting transactions and uses the information to prepare
accounting documents in the standard modules. The JV interface
reviews all accounting documents and uses the information to
prepare a JVA document. The JVA document includes info about the
venture, EG and recovery indicator. You can use this document to
identify financial transactions for a venture and to charge any
venture costs to the relevant partners in the venture.
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Cash Call
Cash calls are requests for payment for anticipated future capital
and operating expenditures, sent by joint venture operators to
non-operating partners
Cash calls can be posted net or gross. Net cash calls are requests
made to a single partner. Gross cash calls are requests made to all
partners in an equity group.
A typical cash call process flow is as below:
A cash call is issued.
A cash call payment is posted.
An expense for which the cash call was issued is then posted.
The cash call is reclassified for clearing.
Cash Call
JVA Overview
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Foreign Currency Valuation
Foreign currency valuation is used for realized and unrealized
foreign exchange, assigning gains and losses to SAP JVA cost
objects, and ultimately to partners.
To bill costs to SAP JVA partners at the end of an accounting
period, it is needed to:
Determine the value of the balances of foreign currency accounts in
terms of local currency.
Account for the differences (gains and losses) that have resulted
from exchange rate changes during the period.
Assign gains and losses to SAP JVA cost objects and ultimately to
partners.
Foreign Currency Valuation
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Allocations
Allocation of costs is a part of closing operations where
administrative costs are allocated to sales and distribution cost
centers.
The following types of allocations are available in SAP JVA:
Assessments
Distributions
Allocations
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Parent Company Overload
The joint venture operator incurs indirect expenses, and can charge
overheads to partners to recover these costs.
Parent company overheads (PCO) are generally posted as part of the
month-end process to cater for costs incurred at the head office
that are chargeable to operated joint ventures.
Parent Company Overload
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Suspense Processing
Suspense processing allows the operator to continue regular
processing in the event of dispute or uncertainty.
Partners may be held in suspense for various reasons; for example,
if there are issues over the partner’s share in a venture or
unwillingness to perform part of venture work.
If a partner is suspended, cutback postings are not executed for
that partner. Suspended partners do not receive invoices.
Suspense Processing
JVA Overview
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and SAP confidential and proprietary material.
Equity Adjustments
An equity change is a change in the equity group because of the
inclusion of a new partner in the JV or the retirement of an
existing partner from the JV during the course of the JV.
During the life of a JV, a number of factors can cause a change to
the equity shares held by each partner. These could be:
A change to an existing arrangement through sale of a partner’s
interest.
A requirement for a brand new equity type (for example: through the
commencement of a new phase of activity).
All these changes in equity groups need to be accounted for, so
that the cost and revenue can be shared between the current
partners.
Equity Adjustments
JVA Overview
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Cutback
SAP JVA’s cutback process assigns expenses to partners.
The operating partner of a joint venture carries all of the
operating costs of that venture throughout the accounting
period.
At the end of the accounting period, the operator’s expenditures
are divided between the operator and the non-operating partners,
according to their equity shares.
Cutback
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Billing
Billing (operated and non-operated) can be invoice based, cash
based, and expenditure based.
At the end of an accounting period, the operating partner recovers
the cost of venture expenditures from the non-operating partners.
The SAP JVA billing program extracts relevant billing information
from the SAP JVA databases and issues invoices and supporting
documents to non-operating venture partners.
Billing
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VBA Switching
The financing arrangements for the ventures might be of the
following types:
All the ventures are funded by a central disbursement bank.
You can fund joint venture expenditures from dedicated venture bank
accounts (VBAs). The operator funds the venture expenditures from
the appropriate VBA. The non-operating partners then reimburse the
VBA.
In order to ensure that each venture pays its share of expenditure
properly, a transfer of funds amongst ventures is required. This
process is known as venture bank account switching.
VBA Switching
JVA Overview
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Partner Netting
The netting process clears cutback transactions against the cash
call issued. A single net open item for each company, partner,
venture, and equity group will be posted and carried forward to the
next accounting period.
Partner netting creates a new clearing entry for each unique
combination of partner, equity group, and venture.
This functionality is available for both operated as well as for
non-operated ventures.
Partner Netting
JVA Overview
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Convenience Netting
Usually, convenience netting is used only by US and Canadian region
companies.
Convenience netting posts the credit entry to the partner’s account
if there is a credit balance. If there is no credit balance for the
partner, the netting program does not post.
Convenience Netting is a three-step process:
All open expense items for a partner for a specified period are
summarized.
All open revenue entries for the partner for the period are
summarized.
If the summarized revenues exceed the expenses, a single credit
entry is posted to the partner’s vendor account in FI accounts
payable.
Convenience Netting
JVA Overview
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Generic SAP Activities
SAP general activity (no JVA process) - Reporting:
This provides various reports on JVA business transactions, and can
be executed on a periodic or ad hoc basis.
SAP general activity (no JVA process) - Carry Forward:
At the end of a process in JVA, there is one procedure that has to
be fulfilled. Carrying forward is not an explicit process but a
procedure for closing a process.
Reporting
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Session Summary
Companies resort to JVs to reduce the risk of high capital
expenditure with a long payback period.
There are various levels of master data to be set up in JVA.
JVA has a number of processes that need to be performed at
pre-determined intervals as period-end processes.
In this course, you have learned that:
JVA Overview
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Questions & Answers
Q&A
Contacts & Links
Contacts & Links
Q&A
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Questions & Answers
Q&A
Services & Solutions
Where are Opportunities & Projects?
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Questions & Answers
Q&A
Contacts & Links
Contacts & Links
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