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In case you did not have a chance to see First Part, you can refer : Functional Area Reporting Scenarios in Oil & Gas Industry – Part 1

In case you did not have a chance to see Second Part, you can refer : Functional Area Reporting Scenarios in Oil & Gas Industry – Part 2

In this Part, let me simulate some important point about the business scenario of Major Expense Workover requiring an AFE approval from the perspective of Functional Area Reporting.

In Oil & Gas Industry, Workover is a common term or terminology used to mean the process of performing major maintenance or remedial treatments on an oil or gas well. 

Again AFE indicates the Authorisation for Expenditure. It is the commonly used term in Oil and Gas Industry for approval of large CAPEX (Capital Expenditure) and sometime OPEX expenditure relating to exploration, development and production i.e. E & P Companies which are mainly called as upstream companies.

Now let’s look at the points how to achieve this business scenario in SAP:

  • Receive Goods / Services against WBS Element: To complete this step we need to do the following activities:

    1. WBS Elements to be created & Responsible Cost Center need to be assigned.
    2. Purchase Orders need to be created for Drilling (committed cost will be available for reporting)
    3. Receive Goods / Services against WBS Element (Account Assignment will automatically post to G/L Accounts based on Material Group mapping) with offset to GR/IR.

  • Posting of Non-Purchase Order Invoices directly to WBS Elements : Non-Purchase Order Invoices to be posted directly to WBS Elements G/L Accounts selected by Accounting Clerk with offset to Vendor.

  • Labour Cost charged to WBS Element based on Time Entry: Actual Hours & Actual Rates will give us the Total Labour cost. Accounting wise, secondary cost element "Labour" can be debited to WBS Element with credit to the Cost Center.

  • Month end Accrual of Capital Cost to WBS Element – In this case relevant G/L Capital Accrual Account need to be offset to Balance Sheet Accrual Account. Important fact to remember that we should use the unique Accrual Document Type here.

  • We need to run the JIB Cut Back Process.

  • Also the WBS Settlement need to be executed.

In case you are reading this blog and not aware about the Joint Interest Billing:

The acronym JIB stands for "Joint Interest Billing”. JIB is a form of accounting unique to the oil and gas industry. Due to the high costs and risks involved in an oil-drilling project, it is common for several parties to come together in a joint venture that designates separate responsibilities and privileges. A JIB statement divides the revenues and
expenses from an oil project among its partners according to their standing agreement.

Now let’s know what are the SAP Modules involved to address the above scenario:

  • Material Management
  • Finance & Controlling
  • Joint Venture
  • Project System

Again you can refer the following link to access one more business scenario for the Functional Area: