configuring cinpi

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Configuring Billing SAP

CI/NPI Partner Netting

OverviewIn north America ( JVA Regions US and Canada) it is common for one or more workinginterest partners in a venture to carry the ownership interest of another partner. In thissituation, the carrying partner or partners assume both the expenses and the revenuesthat would normally accrue to the carried partner. This situation is precipitated when thecarried partner takes one of the following actions:

1. Fails to sign the joint operating agreement (JOA)

2. Exercises the non-consent provisions of the JOA and declines to participate as aworking interest partner in proposed exploration, development, and productionactivities

3. Makes an agreement with the operating partner to yield a working interest to theoperator in return for a negotiated percentage of the interest’s future revenue

There are two types of joint venture partnership arrangements that address thesesituations:

• Carried Interest

• Net Profit Interest

Carried Interest (CI) Partners

A normal working interest partner may become a carried interest partner (CI) by takingone of the following actions:

1. Failing to sign the joint operating agreement (JOA)

2. Exercising the non-consent provisions of the JOA and declining to participate as aworking interest partner in proposed exploration, development, and productionactivities

As long as one of these conditions continues, a group of working interest partners in theventure bears the expenses and shares the revenues that would normally accrue to theCI partner based on the interest’s equity share. When the revenues exceed the sum of

the expenses accumulated since initiation of this arrangement and a designatedadditional percentage of the expenses, payout is achieved. As a result, the CI partner’sinterest reverts to a normal working interest, and that partner once again participates asa full working interest equity owner in the venture. A specific CI arrangement usuallyapplies solely to one JOA; thus, payout is achieved when the penalty provisions of thatone JOA are met.




Net Profit Interest (NPI) A normal working interest partner becomes a net profit interest partner by making anagreement with the operating partner to yield a working interest to the operator in returnfor a negotiated percentage of the interest’s future revenue. The NPI arrangement is

different from the CI arrangement because the NPI partner permanently gives up aworking interest in the venture; whereas, the CI partner temporarily yields the workinginterest until the interest’s revenues exceed its expenses by a ratio, at which time the CIpartner once again participates as a full working interest equity owner in the venture.

Under the conditions of a typical NPI arrangement, the operator of the venture bears theexpenses and enjoys the revenues that would have previously accrued to the NPIpartner based on the interest’s equity share. When the revenues exceed the expensesaccumulated since initiation of the arrangement, unlike the CI partner’s interest, the NPIpartner’s interest does not revert to a normal working interest. Instead the NPI partner receives a percentage of the relinquished interest’s revenues which is specified in thatpartner’s agreement with the operator.

NettingBoth CI and NPI partnership arrangements involve netting expenses and revenues for the partner for the purpose of determining whether payout has been achieved. Thisactivity occurs after Cutback . Processing expenses for ventures that involve CI/NPIarrangements, which includes both Cutback and CI/NPI netting, consists of the followingsteps:

1. Cutback is executed to assign expenses that were booked to cost objects for aventure to the equity group owners based on their ownership share.

2. CI/NPI netting is then executed to compare Cutback -generated expenses with

revenues booked to the CI/NPI partner to determine whether payout has beenachieved (i.e., CI/NPI partner’s revenue exceeds expenses plus a penaltypercentage).

3. If payout is not achieved CI/NPI netting does not post any entries. If payout isachieved, CI/NPI netting posts appropriate revenues to the CI/NPI partner.

Configuration of the JVA processes that are run before netting (particularly Cutback )determines which open items are selected for partner netting. CI/NPI netting selectspost-Cutback entries for processing from the JVA Billing ledger based on the entries’billing indicators.

Payout for CI Partners

Before CI/NPI netting is executed to determine whether a CI partner has reachedpayout, Cutback apportions the expenses for the partner’s share among the workinginterest partners and the operator according to the CI arrangement for the joint ventureand equity group. When CI/NPI netting determines that the CI partner has reachedpayout by comparing these expenses with revenues associated with the CI share, theinterest is converted to a normal working interest, and expenses and revenues onceagain accrue to the CI partner based on the equity share.




Payout for NPI Partners

Before CI/NPI netting is executed to determine whether an NPI partner has reachedpayout, Cutback assigns all expenses associated with the NPI partner’s equity share tothe venture’s operator. CI/NPI netting function assigns a portion of the revenues for the

interest to the NPI partner with the remaining revenue and all expenses being booked tothe operator.

Source of Revenue

JVA Cutback is the source of the expense data input to CI/NPI netting. Revenues mustbe fed into JVA from another computer system, and this data will be the source of revenue data input to CI/NPI netting.

FI and JVA Processes Excluded for CI/NPI Partners

The following FI and JVA processes cannot be executed for CI/NPI partners:

• Placing the partner in suspense

• Posting direct charges to the partner

• Issuing cash calls to the partner

Prerequisites in FI

The FI elements used by carried interest and net profit interest netting can be dividedinto the two following categories:

• Usual FI Configuration

• Clearing-Related Configuration

The distinction between these two categories is based on the nature of carried interestand net profit interest netting as well as on the Cutback JVA processes that post clearingentries in FI .

Usual FI Configuration

To enable JVA to process clearances of actual expenditures properly, certain objectsand accounts must be configured in standard FI . These items include the following:

• Field Status Groups

• Posting Keys

• Special G/L Entry Indicators (SEI’s)

• Partner Reconciliation Accounts

• Document Types




The SAP client that contains JVA is preconfigured with the FI objects and accounts aswell as with the JVA objects needed to execute CI and NPI netting. You may choose tochange some of these items or use additonal items as well as the preconfigured ones.You should use the preconfigured items in FI and in JVA as models for your ownelements. These FI -based objects are the constituent parts used to form the posting

rules in JVA for posting entries from JVA to FI. To see how these FI -based objects areused in formulating the rules of CI and NPI netting, see below under Defining JVAProcesses that Govern Netting.

Field Status Groups

When they are assigned to G/L accounts and posting keys, FI field status groups controlwhether a number of fields are available for entry (either Required, Optional, or Suppressed ) during FI postings. The field status groups assigned to accounts used for JVA CI and NPI netting should make the JVA fields available for entry.

These field status groups should be assigned to the posting keys and the G/L

reconciliation accounts for the customers and vendors who are joint venture partners.These JVA fields must be either optional or required in the field status group to enableJVA netting to clear entries.

The accounts for customers and vendors who are not joint venture partners should beassigned another field status group that does not require JVA information.

Posting Keys

Postings resulting from CI and NPI netting use standard FI posting keys with no need for special configuration.

Special G/L Entry Indicators (SEI’s)

Special G/L Entry Indicators are assigned to posting keys. The SEI’s identify alternativereconciliation accounts that are used to post certain special transactions (such as CashCalls or Partner and Convenience Netting). Specifying SEI’s for these specialtransactions ensures that entries related to a particular special transaction are storedand cleared in a reserved area of the account that is devoted to the special transaction.Since Cutback posts expense entries related to CI and NPI netting to the JVA Billingledger and the CI and NPI netting process accesses these entries from that ledger for clearing, there is no need to specify SEI’s and thus reserve special areas for CI and NPInetting related entries in FI accounts.

FI Account for the Partner To support processing of JVA posted entries within FI , you must create at least one of the following two types of reconciliation accounts in FI for each JVA partner.

• Customer account in FI-Accounts Receivable (A/R)

• Vendor account in FI-Accounts Payable (A/P)




Whether you should set up only an A/R account or both an A/R and an A/P account for aJVA partner is determined by how the partner participates in joint ventures and the kindsof postings that will be made to the partner.

Customer account in FI-Accounts Receivable ( A/R )

To make it possible to post amounts due, for monthly billing, cash calls, or partner netting to JVA partners, every JVA partner must have a customer account in A/R . This

A/R customer account must access a reconciliation account that is assigned a fieldstatus group which allows the input of the field groups Joint Venture Account

Assignment and Joint Venture Billing Indicator .

CI/NPI FI A/R Account Requirements

An FI A/R account must be set up for all working interest partners of a venture andequity group who are carrying partners in a CI arrangement so the CI partner’s expensescan be booked to these carrying partners. At payout (when revenues exceed expenses

plus a penalty percentage), the carried partner will revert to a normal working partner, atwhich time the expenses associated with the interest will be posted to the carriedpartner’s FI A/R account.

The operating company should also have an FI A/R account to receive postings of CIpartner expenses and postings of all expenses from NPI partners.

Vendor account in FI-Accounts Payable ( A/P )

If the partner is also an operator in non-operated ventures or the partner is subject toconvenience netting (which is only used in the United States and Candadian regions),you must create a vendor account for the partner in A/P in addition to the A/R customer

account. In this case the field Vendor must contain the name assigned to the partner inJVA.

CI/NPI FI A/P Account Requirements

An FI A/P account must be set up for CI or NPI partners so that revenues can be postedto the partners after payout is achieved.

Balance Sheet Accounts for Automatic JVA Posting

You should set up balance sheet accounts for the operator to receive netting payoutpostings from each of the following automatic JVA posting procedures:

• Miscellaneous income for NPI

• Net expense for NPI

• Miscellaneous income holding for NPI

Miscellaneous Income for NPI




When an NPI partner reaches payout, the revenue which exceeds the amount paid outto the NPI partner should be posted to this operator account.Net Expense for NPI

When an NPI partner reaches payout in a venture for which there is a net expense

balance, this operator account should be credited for expenses that the operator carriedfor the NPI partner.

Miscellaneous Income Holding for NPI

At payout revenue for the current period that has already been assigned to the operator is redirected to the CI or NPI partner. The debit entry to revenue for this reallocation tothe CI or NPI partner should be made to this operator account.

Document Type

You should set up a document type specifically to receive postings from CI/NPI netting.

This document type should accept postings with the following account types:

• Customer

• Vendor

• G/L

Clearing-Related Configuration

To enable CI and NPI netting to post clearing entries to FI and credit amounts topartners in FI , you must set up the following types of procedures for clearing and for posting credit balances for JVA postings in FI:

• Clearing posting keys

• Payment program configuration

Clearing Posting Keys

FI clearing procedures consist of sets of posting keys which are used to perform varioustypes of clearing postings. JVA posting rules refer to FI clearing procedures, and theposting keys specified in these clearing procedures are used to post the clearing entriescontrolled by those posting rules. The posting keys used for these clearing proceduresmust themselves be configured with the correct SEI’s and field status groups asdescribed above.

Each clearing procedure includes a specification for both debit and credit posting keys tobe used for postings to A/R, A/ P, and G/L accounts. The specification for A/R and A/ Ppostings includes debit and credit posting keys for the following types of postings:

• Clearing entry

• Residual item

• Special G/L transaction




The JVA posting rules idenfity the FI clearing procedure that applies to a particular typeof JVA posting. CI and NPI netting makes use of the clearing procedure calledJVACLEAR to post a summary entry to the carrying partners’ A/R accounts. At payout,CI and NPI netting uses this clearing procedure to post a residual credit balance to theCI and NPI netting partner’s A/P account.

Payment Program Configuration

FI payment program configuration consists of identifying the Special Entry Indicators(SEI’s) that will be used in capturing special G/L transaction payments for the company.CI and NPI netting does not usually make use of SEI’s.

Prerequisites in CO

To make it possible to post expenses for a venture, you must associate a cost object(either a cost center, an order, or a project) with that venture in CO. While setting up

cost objects for ventures in CO, you must also assign joint venture information to them,including the JVA cost object types that correspond to the CI penalty categories.

When you post expenses to the venture, you will associate those expenses with a costobject, and the JVA cost object type associated with that cost object will ensure that theexpenses are identified with a CI penaltry category, if appropriate, as well as with theventure. With regard to posting costs to ventures covered by CI arrangements, costsrelated to the carried interest may be booked to several cost objects associated with theaffected venture.

For more information about reviewing and setting up CO prerequisites, such as Cost Centers, Orders, and Projects, refer to the chapter entitled Setting up Cost Objects in

CO in the section of this guide entitled Configuration for Data Capture.

Company Set-up Decisions in JVA To enable JVA to process CI and NPI netting for your company, you must establish thefollowing pre-conditions within JVA:

• Activate the partners in JVA

• Select CI postings in gross amounts by venture or net by partner

Activate the Partners in JVA

In addition to setting up customer accounts in FI-A/R and vendor accounts in FI-A/P , youalso have to activate the partners in JVA, so that they become JV partners. To do so,you have to maintain an entry for each partner in the JVA partner table.

The entry for a partner record in JVA contains the following information:

• Company code of your company




• Partner code for the partner

• Company code if the partner is a related company using SAP

• Threshold amount for cash calls

• Technical format of billing (paper, EDI, or both)

• regions C and U Output tax code

• Indicator if the partner will be subject to convenience netting

• Billing format if the invoice is on partner level and not on the venture level (For more

information about billing, see the chapter entitled Billing.)

• Billing format if the invoice is on partner level and not on the venture level

• EDI partner identifier

• Partner group to which the partner belongs, which is used in cash calls

Menu Path

To access the partner master record screen to set up partners for your company, followthis menu path: From the Joint Venture Accounting menu, select Environment >Configuration > Environment > Partner. On the Change View Partner: Overview screen,enter the information required for the partner.

For more information on how to set up a partner record in JVA, see the section entitledSetting up Partners in the section entitled Defining Joint Venture System Objects in thisguide.

Select CI Postings in Gross by Venture or Net by Partner

On the JVA Global Company Parameters screen by selecting the Gross CI postings fieldunder Cutback and Billing , you can indicate that expense and revenue CI postingsshould be executed in gross amounts by venture rather than in net by partner, which isthe default method.

If CI postings are posted gross by venture for the company, Cutback will post expensesand expense offsets gross by venture rather than net by partner. Revenues will also beposted gross by venture. The statements issued to the CI partners will also bepresented in gross amounts by venture.

Menu Path

To access the JVA Global Company Parameters screen on which you can choose tohave CI postings for your company posted in gross amounts by venture rather than netby partner, follow this menu path: From the JVA menu select Environment >Configuration menu > Environment > Company > Global parameters. A pop-up screenwill prompt you for your company code. When you enter the company code and pressENTER, the JVA Global Company Parameters screen will be displayed.




Setting up JVA Master Data Objects

As part of configuration for CI/NPI processing, you must set up certain master objectsthat will be used to ascribe attributes to the expense and revenue postings you make for

ventures. As part of JVA configuration of CI and NPI, you should perform the followingtasks:

1. Define the CI penalty categories for the company2. Assign CI penalty categories to JVA cost object types3. Define billing indicators for CI and NPI postings from Cutback 4. Define billing indicators for posting different types of revenues in CI processing5. Set up CI and NPI groups

Define the CI Penalty Categories for the CompanyThere are 36 one-character CI penalty categories, 35 of which (0 to 9 and A to Z ) areuser definable (penalty category 0 is reserved for unmatched records). You may defineany or all of these penalty categories for your company. After you define a penaltycategory for your company, you can assign that category for use at the JOA level.

For each CI penalty category that you activate for your company, you will also have toset up a corresponding JVA billing indicator and a JVA Cutback function item. This willmake it possible to post expenses and revenues for CI partners while applying theproper penalty percentage for calculating payout.

To define penalty categories for your company, enter the following information on thePenalty Category: New Entries screen:

• Code for your company in the CC field

• Code (1 through 9 and A through Z ) for the penalty category in the P field

• Description of the new penalty category in the Penalty Category Name field

Menu Path

To access the Penalty Category: Overview screen for your company to activate CIpenalty categories for your company, follow this menu path: From the Joint Venture

Accounting menu, select Environment > Configuration > Environment > Master >Penalty Category. On the screen, select new entries.




Penalty Categories Typically Used by Different Regions

Though there are 36 CI penalty categories, your company is likely to use only some of these categories. The following table cites the CI penalty categories that are typicallyused by US oil companies:

CI PenaltyCategory

Description

1 Operating

2 Drilling

3 Equipping

4 Rework

5 Surface Equipment

6 Drilling Platform

7 Producing Platform

8 SubsurfaceEquipment

The following table cites the CI penalty categories that are typically used by Canadian oilcompanies:

CI PenaltyCategory

Description

A Exploratory Well - Drilling andCompletion Cost of Well

B Development Well - Drilling andCompletion Cost of Well

C Operating and Maintenance

Assign CI Penalty Categories to JVA Cost Object Types

When you post expenses in FI , you associate them with JVA ventures by booking themto cost objects (WBS’s, orders, and cost centers) that are set up in CO. When you setup these cost objects in CO, you specify an array of joint venture-related informationincluding:

• Joint venture to which the CO cost object belongs

• Recovery indicator that indicates whether expenses booked to the cost object are

billable to partners




• Equity type, which in combination with the joint venture will indicate a valid equity

group

• JV Cost Type which is the JVA cost object type that is associated with the CO cost

object

The JVA cost object types that are assigned to CO cost objects are set up in JVAConfiguration. The JVA cost object type can also be assigned a CI penalty category.When expenses are booked to the cost object in FI , those expenses will be associatedwith the CI penalty category assigned to the cost object type. A penalty category mustbe defined for the company before it can be assigned to a cost object type. To supportthis method of identifying expenses booked to cost objects with CI penalty categories viaJVA cost object types, you should ensure that a cost object type is set up for each of theCI penalty categories that are activated for your company.

When you have defined penalty categories in JVA Configuration, you can activate themfor specific JOA’s for use with joint ventures and equity groups within the JOA.

For more information on setting up billing indicators in JVA, see the section of this guideentitled Defining JVA Objects and the unit entitled Defining Cost Object Types.

To assign CI penalty categories to cost object types for your company, enter thefollowing information on the JV Cost Center, Order, or Project screen:

• Code for a penalty category that has already been defined for the company in JVA

Configuration in the Penalty Category field

Menu Path

To assign CI penalty categories to cost object types, use the following menu path: Fromthe the Joint Venture Accounting menu, select Environment > Configuration > Master Data > Cost Object Types > Projects, Cost Centers, or Orders.

Define Billing Indicators for CI and NPI Postings from Cutback

The JVA CI/NPI netting process derives expenses for its processing from the JVA Billingledger based on the billing indicators of the expenses. These billing indicators areassigned to the postings by the posting rule details that Cutback applies when itreassigns expenses that were originally booked to ventures in FI to the partners in thoseventures based on their equity shares.

To support this process, you must ensure that billing indicators are configured for all theCI penalty categories that you have defined for your company as well as for NPI.Specifically for billing indicators that will be assigned to postings for CI expenses byCutback, you should assign the CI penalty category in the ExpT (expense type) field for the billing indicator

For more information on setting up billing indicators in JVA, see the section of this guideentitled Defining JVA Objects and the unit entitled Defining Billing Indicators.




Menu Path

To review existing billing indicators for JVA processes or define new ones, use thefollowing menu path: From the Joint Venture Accounting menu, select Environment >Configuration > Master Data > Billing Indicator > Master .

Define Billing Indicators for Posting Revenues Via REVI The same 36 one-character codes, 35 of which (0 to 9 and A to Z ) are user definable(0 is reserved for unmatched records) are available for setting up billing indicators for different types of revenue as are available for setting up CI penalties.

You may define a billing indicator for a particular type of revenue by combining one of these one-character codes with a prefix of R . You may use any or all of these codes incombination with the R prefix to define revenue billing indicators for your company. Asyou set up these revenue billing indicators, you should select the revenue indicator RevId to indicate that the billing indicator will be assigned to revenue postings.

For each revenue billing indicator that you set up, you must also set up a correspondingfunction item for the REVI function, which is used to post CI/NPI revenues. This willmake it possible to post specific types of revenues to CI/NPI partners.

Menu Path

Use the same menu path used to access CI/NPI Cutback billing indicators.

Set up CI and NPI GroupsWhen changes in ownership of a venture (that do not involve the CI or NPI partner’sshare) occur while a CI or an NPI arrangement is in effect, a new equity group must be

created for the venture to reflect the new ownership. Under these circumstances, the CIpartner’s revenues and expenses for both equity groups should be netted together todetermine when payout is achieved.

In the absence of an indication to JVA of this connection between equity groups,however, payout would be calculated separately for each equity group. Assigning theCI/NPI partner to the same CI or NPI group in both equity groups notifies JVA that therevenues and expenses from both equity groups should be combined for the purposes of determining when payout is achieved for the CI/NPI partner. To make it possible toassign CI/NPI partners to CI or NPI groups at the venture, equity group, partner level,these groups must be set up as master data objects at the company level within JVAConfiguration.

To set up an NPI group for your company, enter the following information on the JV Net Profit Interest Group: New Entries screen:

• Code for your company in the CoCd field

• Four-character code for the NPI group in the NPIG or for the CI group in the Cgrp

field




• Percentage of revenue that exceed expenses for the interest to be paid out to the

NPI partner when revenues exceed expenses for the share in the NPI Pay % field

• Description of the NPI group in the JV Net Pofit Int Text field or the CI group in the

Carried Interest Group Name field

Setting up a CI group is similar to setting up an NPI group with the exception that youwill not enter a percentage of revenue to be paid out to the partner at payout. Thepercentage to be paid out at payout is unnecessary for the CI groups because the CIpartner’s interest converts to a working interest at payout and the partner receives allsubsequent revenue

Menu Path

To define CI or NPI groups, use the following menu path: From the the Joint Venture Accounting menu, select Environment > Configuration >CI Groups or NPI Groups. Toset up a new group, select New Entries on the Overview screen.

Define JVA Processes that Govern CI/NPINetting

A set of objects created in JVA configuration are delivered with JVA to control executionof major joint venture accounting processes such as CI and NPI netting. Working incombination with one another, these objects identify the various types of postings thatJVA makes to FI to implement accounting transactions performed in JVA. In addition,they specify the characteristics of these postings (such as the posting key and subledger of the posting).

As a group, the following objects provide a protocol for processing major joint ventureaccounting processes:

• Function

• Function item

• Posting rules and details

Generally, you should not change the preconfigured JVA objects that are used to controlthe execution of major processes. These objects have been preconfigured to provide allthe functionality that should be needed for executing the major accounting processes in

JVA. If you do choose to use alternative objects to control the major accountingprocesses in JVA, you should use the corresponding preconfigured objects as models increating your own. There are some exceptions to this general rule with regard to CI/NPI.




Three of these sets of objects which implement the following major JVA processes areinvolved in CI/NPI:

Process JVA Function

Cutback CUTB

CI/NPI Netting NETT

Revenue REVI

Cutback

The JVA process Cutback assigns expenses posted to ventures in FI and CO to venturepartners in JVA based on their equity share. The expense postings associated withCI/NPI arrangements that will ultimately be netted through the CI/NPI netting process

(function NETT ) must first be processed through Cutback. Cutback must be configuredso that it applies the proper billing indicators to these CI/NPI postings. This will ensurethat the postings will be picked up when CI/NPI netting is executed.

To support the processing of CI/NPI netting, the JVA Cutback function (CUTB) must beconfigured with a function item for each of the following CI/NPI conditions:

• Each CI penalty category that has been activated for the company

• NPI postings

• CI/NPI offset postings

At a minimum, you must define a function item for each one of the CI penalty categories

that you have defined for the company. The posting rule details for each of theseCI/NPI-related function items of Cutback must themselves be configured with postingrule details containing both appropriate debit and credit posting keys and with billingindicators. When you set up CI billing indicators in JVA Configuration, you assignedexpense types (ExpT field) consisting of the penalty categories to them. When youassign these CI billing indicators to the posting rule details for CI/NPI Cutback functionitems, the expense type assigned to the billing indicator must consist of the samepenalty category that composes the second character of the function item’s name.

This configuration of the JVA Cutback function (CUTB) will ensure that upon executionCutback will assign billing indicators to CI/NPI postings that will allow the CI/NPI nettingfunction (NETT ) to pick them up for processing. Function item CN is used for NPI

postings.

Cutback function item CC corresponds to the CI expense type 0, the default for unmatched records. Function item P0 is excluded from use. Function item CO is usedfor offset entries for the other CI function items.




CI and NPI Netting Function

A JVA function has been created for each of the major processes performed by JVA.With regard to CI/NPI netting, the function NETT has been created.

JVA FUNCTION Description

NETT Execute CI/NPI netting for the selected CI/NPI partner:

1. Determining whether payout has been achieved by comparing Cutback-generated expenses for the CI/NPI partner to revenues for the partner

2. Assigning expenses and revenues for the partner either to the partner or to carrying partners depending on whether conditions for payout havebeen met and whether the partner is covered by a CI or an NPIarrangement

3. Removing the Interest Type for carried interest from the CI partner’srecord at the venture level if payout has been achieved, thusreestablishing the partner as a working interest partner

Function Items

Function items provide multiple alternative expense processing procedures that flowfrom a single function. The number and nature of these alternative procedures dependson the type and condition of the partner’s relationship to the venture whose expensesare being processed. Different functions offer different possibilities for such partner relationships.

For example, in addition to processing expenses for normal partner accounts Cutback provides processing procedures for handling expenses for such special situations assuspended, carried interest, and net profit interest partners as well. So there are anumber of function items for the single Cutback function, one for each possiblealternative processing procedure. By contrast, some functions are limited to onepossible processing procedure, so they have a single function item.

A JVA function item has been created for each of the three alternative processingprocedures performed by the CI/NPI netting function (NETT):

• Booking expenses for the carried partner’s interest to non-operating carrying

partners

•

Booking expenses and revenues for the carried partner’s interest to the operatingpartner

• Booking revenues for the carried partner’s interest to non-operating carrying partners

CI/NPI netting (represented by function NETT ) is executed after Cutback and is intendedto assign multiple expense and revenue items for a CI/NPI partner to the carryingworking interest partners or to the operator.




Since NETT is designed to perform three possible actions, three function items (CU, EN,VE ) are assigned to it. These function items indicate that the FI posting resulting fromthe execution of the protocol controlled by the NETT function will be booked to theappropriate partner and FI account.

JVA Function Process Function Item Process

NETT CI/NPINetting

CU Booking expense to working interest partner of venturewho is carrying CI/NPI partner.

EN Booking of net expense or revenue to operator who iscarrying CI or NPI partner.

VE Booking of revenue to working interest partner of venturewho is carrying CI/NPI partner.

The following additional function items are preconfigured for processing intercompanyCI/NPI postings:

JVA Function Process Function Item Process

NETT CI/NPI Netting IC Booking of net expense to working interest partner of venture who is carrying CI/NPI partner.

IE Booking of net revenue to working interest partner of venture who is carrying CI/NPI partner.

IV Booking of net revenue to operator who is carrying CI or NPI partner




Define CI/NPI Revenue Process REVI

The JVA function REVI is actually invoked by the CI/NPI netting function NETT. Therevenue function REVI actually provides functionality to CI/NPI netting that allows

revenues to be booked to the carried CI/NPI partner when payout is achieved. Thefollowing function items are preconfigured for the function REVI:

JVAFunction

Process Function Item Process

REVI CI/NPI Revenue CC Booking of revenue to CI partner at payout

CN Booking of revenue to NPI partner atpayout

CO CI/NPI offset entry for revenue posting tocarried partner

Additional REVI Function ItemsFor each specific type of revenue that you want to distinguish, you should set up aseparate function item with dependent posting rule details. The function item for arevenue type will have the same code as the billing indicator for the revenue type(discussed above under Define Billing Indicators for Posting Revenues Via REV ).

For example, if you want to distinguish Gross Gas Revenues, you might define a billingindicator of R1 to represent that type of revenue posting. At the same time, you should

define a function item for REVI of R1, and the posting rule details for this function itemshould include R1 as the billing indicator assigned to postings generated via the item.The posting rule details would also include a designation of the posting key for a debitposting as a bill (posting key 01) and a credit posting as a credit memo (posting key 11).

Menu Path

To review the JVA function items that are preconfigured for the Cutback, CI/NPI netting,and the CI/NPI revenue functions and function items, follow this menu path: From thethe Joint Venture Accounting menu, select Environment > Configuration > Processing >Processes > Function items. All the function items configured for JVA will be displayedon the JV Function items: Overview screen.

Posting Rules and Posting Rule Details

JVA posting rules and posting rule details work in tandem to define the characteristics of the FI posting that results from execution of the accounting transaction controlled by theJVA function and function item. The posting rules for a function state the conditions for selecting entries to be processed by the JVA process represented by the functionprotocol. The posting rule details provide the features of the FI posting that results from




the execution of the JVA process represented by the function and function itemcombination.

Preconfigured Posting Rules for Processing CI/NPI Netting

The posting rules serve as a filter for selecting entries to be processed by the JVAprocess. The posting rules are controlled by the function alone, so they apply to all thefunction items that are controlled by that function. JVA posting rules include thefollowing information:

• Document type of a debit posting generated by this function in the DB field

• Clearing procedure to be applied to open items processed by this function in the

ClerPrc field

• List of the Special G/L Entry Indicators (SEI ) from which entries should be cleared by

this function in the Clear SEI field

• Indicator if entries without SEI ’s should be cleared by this function in the ClerBID

field

Function DB ClerPrc Clear SEI ClerBID

NETT DE - JVACI/NPI Posting

JVACLEAR - JVA Transfer with Clearing

YES

Document Type of a Debit Posting

The document type for a debit posting part of the posting rules specifies the documentheader information for the FI document that was posted from JVA. Documents of thistype will be accessed when the current function (NETT ) is executed.

In addition to specifying the number range for documents posted using the documenttype, the document type also limits the types of accounts that can be posted to. Youmay specify a recovery indicator for postings originating in JVA as part of the definitionof a document type. It is important to coordinate the debit document type with thespecification for recovery indicator to be applied to the outgoing FI posting which isspecified in the posting rule details.

The document type for debit postings that will be accessed by NETT indicates that theposting is a CI/NPI posting from the JVA Billing ledger. No recovery indicator isspecified for the document type.

Clearing Procedure

The clearing program JVACLEAR , which is used by NETT, incorporates the billing andoperations month functionality used in common by cash calls and other nettingprocessing.




Clearing SEI

The entries in the Clear SEI field of the posting rules for the function determine whatopen items are selected for processing. Since entries are selected for processing by theCI/NPI netting function (NETT ) from the JVA Billing ledger based on billing indicator, no

SEI is needed to target certain entries in FI.

Indicator to Include Entries without SEI ’s

NETT is preconfigured to accept entries without SEI’s for processing.

Preconfigured Posting Rules for REVI

The CI/NPI function for revenue (REVI ) consists solely of a designation of the debitdocument type (DB field) as CI/NPI revenue (document type DV ).

Menu Path

To review the JVA posting rules that are preconfigured for the CI and NPI process,follow this menu path: From the the Joint Venture Accounting menu, select Environment > Configuration > Processing > Posting > Rules. All the posting rules configured for JVAwill be displayed by company on the JV Posting Rules: Overview screen.

Preconfigured Posting Rule Details for Processing CI/NPI Netting

Posting rule details specify the following features of both debit and credit FI postingsposted by the execution of the function and function item:

• Posting keys

• Subledger (or special entry indicator)

• Billing indicator

• Payment block for automatic postings

• Recovery indicator to be assigned

The preconfigured CI/NPI netting function (NETT ) that generates postings to FI isdelivered with posting rule details. These posting rule details define the followingfeatures of postings that are initiated by the netting function:

• Posting key for debit and credit entries

• Billing indicator

• Payment block for automatic postings




The following table illustrates configuration of the posting rule details for NETT :

Function FunctionItem

Description PostingKeys

SpecialEntry

Indicator

BillingIndicator

PaymentBlock

RecoveryIndicator

DB CR DB CR DB CR DB CR DB CR

NETT CU Receivable posting tocarrying partner for CI/NPI partner interestexpense

01 11 6 6 A A

EN Posting to operator account for revenuepayout to CI/NPI partner

40 50

VE Payable posting toposting to carryingpartner for CI/NPIpartner interest expense

21 31

The function NETT has three function items assigned: CU for expense postings toworking interest partners who are carrying a CI/NPI partner, EN for operator net postingsunder CI/NPI arrangements, and VE for revenue postings to partners who are carrying aCI/NPI partner after payout has been reached. Each of these three combinations of thefunction NETT and one of the function items invokes a different set of posting rule detailsthat specify information to be included in processing the FB05 JV Clearing with Transfer transaction that completes NETT execution. The rules determine the characteristics of the new open items which result from executing CI/NPI.

CI Postings to Carrying Partners

Under Carried Interest (CI) arrangements, working interest partners share responsibilityfor carrying the carried partners portion of venture expenses as well as enjoy a portion of the partner’s revenues along with the venture’s operator. When payout is achieved, thecarrying partners is billed for the appropriate share of the revenues owed the carriedpartner through a debit posting of an invoice (posting key: 01) with a JVA billing indicator for an expenditure (billing indicator: 6 ) and a block on the payment (payment block: A) sothat the carrying partner’s account is debited and a separate invoice is not sent for thischarge.



BillingIndicator

PaymentBlock

DB CR DB CR DB CR

NETT CU Receivable posting toworking interest partner for revenue payout to CI/NPIpartner

01 6 A




CI/NPI Postings to the Operator

Under both Carried Interest (CI) and Net Profit Interest (NPI) arrangements, theoperator assumes responsibility for at least a part of the carried partner’s expenses andreceives at least a portion of that partner’s revenues as well. When payout is achieved

in either case, the operator is billed for the appropriate share of the revenues owed thecarried partner through a standard debit posting of an expenditure (posting key: 40 ) tothe operator’s miscellaneous income holding account. Revenue for the CI/NPI partner’sshare in the venture has been booked to this same account during the period of theCI/NPI arrangement.



DB CR

NETT EN Posting to operator accountfor revenue payout to

CI/NPI partner

40

CI/NPI Postings to the CI/NPI Partner

For both Carried Interest (CI) and Net Profit Interest (NPI) arrangements, the non-operating carrying partner receive the revenue for the carried partner as a credit memo(posting key: 21) posting.



DB CR

NETT VE Payable posting to CI/NPIpartner when payout isreached

21




Posting Rule Details for the Revenue Function REVI

When payout is achieved either under a CI or an NPI arrangement, subsequentrevenues for the carried partner’s share are assigned to the carried partner rather thanto the carrying partners. The posting rules details associated with the revenue function

REVI and its function items are as follows:



SpecialEntry

Indicator

BillingIndicator

PaymentBlock

RecoveryIndicator

DB CR DB CR DB CR DB CR DB CR

REVI CC Payable posting to CIpartner at payout

0D 1D P P 18 18

CN Payable posting to NPIpartner at payout

0D 1D P P 18 18

CO Offset for payableposting to carriedpartner at payout

0D 1D P P 19 19

Payable Posting to CI Partner

When payout is achieved for a CI partner, CI/NPI netting invokes the function REVI andthe function item CC . A revenue posting to a CI partner will be posted using the postingkey 0D for JVA Revenue to the special GL entry indicator P for JVA Revenue with a JVAbilling indicator of 18 for NPI/CI Revenue.

Payable Posting to NPI Partner

When payout is achieved for an NPI partner, CI/NPI netting invokes the function REVI and the function item CN . A revenue posting to an NPI partner will be posted using theposting key 0D for JVA Revenue to the special GL entry indicator P for JVA Revenue with a JVA billing indicator of 18 for NPI/CI Revenue.

Offset Entry for CI/NPI Revenue Posting

The offset for a revenue posting to a CI or NPI partner uses the function REVI and thefunction item CO with the posting key 0D for JVA Revenue to the special GL entryindicator P for JVA Revenue with a JVA billing indicator of 19 for NPI/CI Revenue Offset.

Menu Path

To review the JVA posting rule details that are preconfigured for the CI and NPI process,follow this menu path: From the the Joint Venture Accounting menu, select Environment > Configuration > Processing > Posting > Rules. All the posting rules configured for JVAwill be displayed by company on the JV Posting Rules: Overview screen. To access thespecifications for the debit and credit entries generated by a rule, place the cursor on thesame line as the rule and select Posting Rule Details. This will display the initial JV Posting Rule Details: Overview screen for the function within the company. To view the




posting rule details for a specific function and function item combination, select afunction item and select Details. This will display the JV Posting Rule Detail: Details screen for the function and function item combination.

JVA Automatic Posting Processes

The JVA automatic posting processes for CI/NPI must all post to balance sheetaccounts. These automatic posting processes are:

• JV3 for miscellaneous income for NPI

• JV4 for net expense for NPI

• JV5 for miscellaneous income holding for NPI

Joint Operating Agreement

A specific CI arrangement always applies solely to one JOA; thus, payout is achievedwhen the penalty provisions of that one JOA are met. Multiple penalty categories for different types of expenses may be stipulated for a single JOA.

In addition to defining objects and processes to control CI/NPI netting in JVAconfiguration, you must perform some tasks at the JOA and JV level to enable CI/NPIprocessing to work properly. You must perform the following tasks at the JOA level:

• Activate CI penalty categories

• Assign penalty percentage for CI penalty categories

• Stop payment for non-signatory CI partners

Activate CI Penalty Categories and Assign Penalty Percentages

As part of the configuration of your company in JVA (see Company Set-up Decisions inJVA above), you activate selected CI penalty categories for your company.

There are two reasons that a CI partnership arrangement may be initiated for a partner.The partner may decline to participate in an activity for the venture (non-consent), or thepartner may have failed to sign the JOA (non-signatory). Before you can apply one of the penalty categories for the company to a partner in a venture, you must both activatethe CI penalty category and assign penalty percentages for both non-consent and non-signatory conditions at the JOA level.

During CI netting the penalty percentage for a CI penalty category will be applied toexpenses booked to the to cost objects associated with this penalty category. Theresulting amount will be added to expenses to determine when payout is achieved.Revenues for the CI partner must exceed expenses for the partner plus penalties inorder for payout to be achieved.




To activate a CI penalty category and penalty percentages at the JOA level, enter thefollowing information on the Change Operating Agreement: Penalty Category Recovery % screen:

• Code for the CI penalty category that you already set up in JVA Configuration in the

P field

• Percentage to be applied to expenses (must be equal to or greater than 100%) with

this CI penalty category to determine the penalty amount to be added to expenses todetermine when payout is achieved in the Non-con % (non-consent) field

• Percentage to be applied to expenses (must be equal to or greater than 100%) with

this CI penalty category to determine the penalty amount to be added to expenses todetermine when payout is achieved in the Non-Sig % (non-signatory) field

Menu Path

To activate penalty categories for a JOA and assign penalty percentages to them, usethe following menu path: From the Joint Venture Accounting menu, select Master data >Joint operating agreement > Change. On the Joint operating agreement: Changescreen, enter the code for the JOA in the Joint Oper. Agr field and the code for your company in the Company code field and select the Penalty Cat. Rec.% field.

Stop Payment for Non-Signatory CI Partners

Between the time when a non-signatory partner is placed in CI status and when theagreement is signed, you may want to prevent the partner from reaching payout byputting a stop payment on the partner at the JOA and equity group level. The stop pay

will prevent revenues from being accrued for the partner, so payout will not be achieved.This may be necessary for non-signatory CI partners.

Menu Path

To put a stop pay on a partner within an equity group of a JOA, use the following menupath: From the the Joint Venture Accounting menu, select Master data > Joint operating agreement > Change. On the Joint operating agreement: Change screen, enter the codefor the JOA in the Joint Oper. Agr field and the code for your company in the Company code field and select Equity Group. On the Change Joint Agreement: Equity Group screen, select the equity group in which the non-signatory CI partner is an owner andselect Select . On the Change Joint Agreement: Partner Shares screen for the equitygroup, select S for Stop Payment to put a stop payment on a particular partner.




Joint Venture and Equity Group

At the JV level, you should perform the following tasks to support CI/NPI processing:

• Assign partners to CI and NPI groups

• Assign an interest type to CI or NPI partners

• Identify the carrying partners for a CI partner’s share and the percentage those

partners will carry.

Assign Partners to CI or NPI Groups

CI groups are used to execute netting across multiple venture equity groups within the

JOA. There may be changes of ownership of a venture for which a CI or an NPIarrangement is active which does not involve the CI or NPI partner’s share. In this case,a new equity group will be set up to provide for the new ownership arrangement. Youmust assign the CI or NPI partner to a CI or NPI group which has already been set upthrough JVA configuration (See Set up CI and NPI Groups above) to indicate that the theCI or NPI partner’s revenues and expenses for the equity groups should be combined for the netting that determines when payout is achieved.

Net Profit Interest Group

The NPI group is assigned at the venture and equity group. To assign an equity groupto an NPI group for a specific venture, enter the following information on the Change

Joint Venture Master: Equity Group screen:

• Code for the NPI group, which has already been set up in JVA Configuration, to

which the equity group will be assigned in the NPIG field

Carried Interest Type and Group

CI groups are used to net expenses and revenues for a CI partner across multiple equitygroups. Partners are assigned to CI groups at the partner level within a venture and anequity group. so you will have to assign the same partner to the same group for all equitygroups within the venture that should be included in netting the partner’s expenses and

revenues to determine when payout is reached.

At the partner level within the venture and equity group, you should perform the followingtasks:

1. Identify the interest type of the partner’s interest

2. Assign the partner to a CI group if the partner’s share represents a carried interestinterest type




To assign a partner in a venture and equity group to CI or NPI status, you must enter one of the following codes in the T or Interest Type field for the partner on the Change Joint Venture Master: Partner Shares screen for the venture and equity group:

InterestType

Description

1 Carried Interest - Non-Signatory

2 Net Profit Interest

3 Carried Interest - Non-Consenting

4 Working Interest after CI Payout

Blank Working Interest

A Carried Interest - Non-Signatory condition exists when the partner has failed to signthe joint operating agreement. A Net Profit Interest exists when the partner yields theworking interest to the operator, who henceforth accrues the revenues and expenses for the interest, in return for a specified percentage of revenues that exceed expenses. ACarried Interest - Non-Consenting condition exists when the partner declines toparticipate in an exploration, development, or production activity for the venture as acontributing working interest partner.

A Working Interest after CI Payout condition occurs when the cumulative revenues for the ownership share of a partner who is in CI status exceed the expenses for that shareby a specified percentage. If the CI partner is not on stop pay, the system converts the

partner from CI status to working interest status upon execution of the CI/NPI postingthat establishes the conditions required for the conversion (i.e., revenues exceedexpenses by a specified percentage).

Several activities may be underway for a venture at the same time, and it is possible thatthe same partner may decline to participate in more than one of these activities. A newventure or equity group may be set up for each activity. To distinguish between theactivities for the purposes of determining when payout is achieved, it is important to useCI and NPI groups (see Assign Partners to CI or NPI Groups above).

To assign a partner to a carried interest group, enter the following information on theChange Joint Venture Master: Partner Shares screen:

• Code for the carried interest group, which has already been set up in JVA

Configuration, in the Cgrp field

A CI group must be unique to a single JOA. CI groups must also be unique to an interesttype within the JOA.

Menu Path




To assign partners to a CI or an NPI group within an equity group and a venture, use thefollowing menu path: From the the Joint Venture Accounting menu, select Master data >Joint venture >Change. On the Joint Venture Master: Change screen, enter the code for the joint venture in the Joint Venture field and the code for your company in theCompany code field and select Equity Groups.

On the Change Joint Venture Master: Equity Groups screen, you can assign the equitygroup to an NPI group. If you want to assign a partner to a CI group for the venture andequity group, select the equity group to which the partner to be assigned to a CI or NPIgroup belongs and select Details > Partner Shares to access the Change Joint VentureMaster: Partner Shares screen on which you can assign the partner to an interest typeand a carried interest group.

Identify the Carrying Partners and Their Carrying Percentage

Any number of the partners in an equity group can be assigned as carrying partners for a CI partner’s share. Each carrying partner must also be assigned a percentage of theCI partner’s share. To Indentify the carrying partners of a CI partner’s share andindicate the percentage of the interest that each will carry, enter the following informationon the the Change Joint Venture Master: Carried Interest screen:

• Code for the carrying partner in the Carry Part field

• Percentage of the CI partner’s share that the carrying partner will bear in the

CarrShare field

Menu Path

To assign equity group partners to carry a percentage of a CI partner’s share, use thefollowing menu path: From the the Joint Venture Accounting menu, select Master data >Joint venture >Change. On the Joint Venture Master: Change screen, enter the code for the joint venture in the Joint Venture field and the code for your company in theCompany code field and select Equity Groups. On the Change Joint Venture Master:Equity Group screen, select the equity group affected by the carried interest conditionand select Details > Partner Shares. On the Change Joint Venture Master: Partner Shares screen, select the CI partner and select Details > Carried Interest to access thethe Change Joint Venture Master: Carried Interest screen on which you can assignpartners to carry the CI partner’s interest.

CI/NPI Netting ProcessingExecuting CI/NPI Netting with Selection Criteria

The screen from which you execute CI/NPI netting (NETT ) allows you to specify critieriafor selecting open items for processing. Based on this selection criteria, open items arethen selected from the JVA Billing ledger. The NETT selection criteria includes:




• Company code

• Partner,

• Period and Year




The following table outlines how the program executes the selection criteria:

Selection Criteria Selection Processing

Company Open item must have company code.

Partner Open item must have partner

Period and Year OR Open item must have posting date less than or equal to the last dayof the period and year entered on the screen, or less than or equalto the posting date entered on the screen.

CI Netting

For CI partners until payout is achieved, all expenses and revenues for the CI partner’sshare will be booked to the carrying partners according to the percentage of the CIpartner’s share that they are carrying. When revenues exceed expenses by a penaltypercentage, revenues that exceed expenses plus the penalty amount will be booked tothe CI partner and the CI partner will convert to a normal working interest partner.

Changes in venture ownership that are not related CI arrangement do not affectcalculation of payout.

If consecutive non-consent operations result in a CI arrangement for the same partner,payout is calculated based on the costs and revenues of both operations

NPI Netting

For NPI partners until payout is achieved, all expenses and revenues for the NPIpartner’s are booked to the operator. When revenues for the share exceed expenses, apercentage of the revenues that exceed expenses will be booked to the NPI partner.The percentage of revenues to be booked to the NPI partner after payout is achieved isspecified in the NPI group set up through JVA Configuration.