NNPC Limited Finance & Accounts - Joint Interest Management (PDF)

NNPC Limited Finance and Accounts Process and Procedures 15.0 sJoint Interest Management (Non-operated Assets) 15.1 Objectives This section covers activities involved in the management of the NNPC Limited and its Subsidiaries’ interest in Joint Venture arrangements in the upstream oil and gas secto...

NNPC Limited Finance and Accounts Process and Procedures 15.0 sJoint Interest Management (Non-operated Assets) 15.1 Objectives This section covers activities involved in the management of the NNPC Limited and its Subsidiaries’ interest in Joint Venture arrangements in the upstream oil and gas sector, with regards to operated oil and gas assets. The policy is designed to ensure:  Proper evaluation of NNPC Limited’s participation in Joint Ventures under Joint Operating Agreement and laws.  Necessary steps are taken to safeguard NNPC Limited’s interest with regard to Joint Ventures.  Ensure proper monitoring and reporting of NNPC Limited and its Subsidiaries’ interest in Joint Venture arrangements. 15.2 Scope/Applicability The sub-processes covered under this section include:  Management of joint venture operations;  Work programme/budget preparation and review;  Cash call management;  JV Vendor and Contractor Management  Expenditure performance reporting/review;  Monthly/annual management reporting 15.3 Policy Statements NNPC Limited and its subsidiaries shall make optimum utilisation of resources and achieve synergy through her Joint Ventures Operations. 136 NNPC Limited Finance and Accounts Process and Procedures All joint operating arrangements shall be backed up by a Joint Operating Agreement (JOA) binding on all parties to the Joint Venture (JV). 15.4 Procedural Guidelines for JV Management 15.4.1 Management of Joint Interest Arrangement The following guidelines shall apply in the management of JV nonoperated assets:  All JVs shall be guided by the JOA. The JOA shall serve as a reference point for each party’s rights and obligations to the assets and liabilities of the joint interest arrangements.  An Operating Committee (OPCOM) shall be established for the purpose of providing strategic direction and control of all matters pertaining to the joint operations. The roles and responsibilities of the Committee shall be clearly defined in the JOA and shall include the following:  Approval, revision, or rejection of all proposed work programme, budgets and annual performance;  Approve the selection, scope, timing and location of all wells and facilities for Joint Operations and of any change in the use or status of any such wells and facilities;  Consideration and determination of all matters relating to the general policies, special studies, research, procedures and methods of the Joint Operations;  Ensuring that the Operator carries out the decisions of the Operating Committee; and  Establishing other sub-committees for the handling of technical, financial, and other operational matters. 137 NNPC Limited Finance and Accounts Process and Procedures  The OPCOM shall comprise members from both the Operator and Non-Operator as defined in the JOA. 15.4.2 Work Programme/Budget Preparation and Review  Capital and operating budgets shall be prepared in accordance with the JOA.  The budget and work programme shall contain an itemised estimate of revenue to be received and expenditure to be incurred during the applicable period and shall:  Identify revenue sources in sufficient detail;  Identify CAPEX and OPEX in sufficient detail;  Identify each activity in sufficient detail to highlight the nature, scope, duration, and impact of the activity with appropriate justification; and  Be accompanied by other information as is necessary for an informed decision.  The following committees shall conduct a review of the budget at various periods:  Sub-Committee (SUBCOM);  Finance Committee (FINCOM);  Technical Committee (TECOM); and  Operating Committee (OPCOM).  The budget guideline shall provide general guidance for budget preparation and contain the following information:  Corporate/ strategic objectives;  Period to be covered by the budget;  Key dates, responsibilities, deliverables and timelines; 138 NNPC Limited Finance and Accounts Process and Procedures  Budget categories and responsibility /ownership of each category;  Input forms/templates;  Instructions for completing the templates;  Instructions for budget submission;  Method of budget collation; and  Target overall increase/decrease in expenditure.  The JOA budget shall contain the following:  Budget activity work plan/ preparation timetable;  Guidelines/ Instructions;  Budget assumptions; and  Input sheets/ templates.  All Budget Owners shall be responsible for the preparation of annual budgets and work programs for their respective assets in line with Uniform Accounting Procedures (UAP) code. This shall be done in conjunction with the Planning and Commercial department.  The Sub-Committee (SUBCOM) shall conduct detailed budget review session(s) to challenge and agree the budget estimates/assumptions and ensure alignment with corporate objectives.  The Finance Committee (FINCOM) shall collate and consolidate all recommendations from the SUBCOM and forward to the TECOM.  The Technical Committee (TECOM) shall be responsible for the review and recommendation of the consolidated draft budget for OPCOM consideration and approval.  The authority to approve the work programme and budget shall rest solely with OPCOM subject to recommendations by SUBCOM, 139 NNPC Limited Finance and Accounts Process and Procedures FINCOM and TECOM. The approved work program and budget shall be circulated to the JV Partners.  All unbudgeted expenditure shall have the concurrence of the nonoperator before such expense is incurred.  The Budgeting and Planning Department shall be responsible for ensuring that uploaded budgets in the accounting system are accurate and that they reflect the substance of approval by OPCOM and subsequent releases of the budget. 15.4.3 Cash Call Management  Cash call requests shall be prepared on a monthly basis, in alignment with the JV’s cash requirements and financial obligations. The preparation of the cash call requests for a month shall commence not later than the first working day of the preceding month.  Payment terms on Cash Calls shall be in line with the JOA.  Cash Call payment approval shall be in line with the Delegation of Authority limits.  Cash call requests for each asset shall be forwarded to the JV partners for review and approval not later than 15 working days before cash call month.  Cash call reconciliations shall be performed on a monthly basis. Each partner’s cash call position in the JV shall be agreed and signed off. The cash call reconciliation statement shall form an input in the monthly JV returns statements. 15.4.4 Expenditure Performance Reporting/Review  Monthly Expenditure Review - Performance reviews shall be conducted on a monthly basis. Expenditure returns shall be 140 NNPC Limited Finance and Accounts Process and Procedures submitted by the Operator for month M-2 (two months in arrears) in line with the provisions of the JOA.  SUBCOM shall review the reported performance submitted by the Operator for adequacy.  Quarterly and Annual Performance Review - Performance reviews shall be conducted to ensure that reported quarterly and annual performance aligns with approved work programme and budget for the year.  The SUBCOM shall review the reported performance submitted by the Operator and make recommendations to TECOM. FINCOM shall consolidate the recommendations of all SUBCOMs for onward submission to TECOM.  The TECOM shall be responsible for reviewing and endorsing the consolidated annual performance of SUBCOM and endorsing same to OPCOM for consideration and approval.  Audit of Operator’s Book - The non-operating partner may appoint an external auditor (in line with the provisions of the JOA) who shall undertake the audit of the books of operating partner at the nonoperating partner’s cost.  Documents required for performance review are:  Approved work program and budget;  Contract documents;  Payment documents;  NNPC management approval;  Bank statements;  Job completion certificates; and  Any other documents required by the SUBCOM. 141 NNPC Limited Finance and Accounts Process and Procedures 15.4.5 Monthly/Annual Management Reporting  The Finance Division shall be responsible for identifying policy gaps and documentation for update of the detailed policies and procedures involved in Financial Reporting.  The Finance Division shall on a monthly basis prepare the operational and financial performance reports in line with the management reporting framework.  The data used in preparing the operational and financial performance reports must be sourced from the ERP.  All operational and financial performance reports shall include historical trend covering the past and current periods. 15.5 Compliance NNPC Limited and its Subsidiaries shall comply with the provisions of the JV agreement, the IFRS 11 – Joint Arrangements, in classifying, recording, and reporting financial transactions arising from the JV arrangement. (Refer to the NNPC Limited’s Accounting Policy for detailed accounting treatment on joint venture arrangements. Where there is a conflict between the requirements of this policy and the provisions of the JV agreement, the requirements of the JV arrangement shall supersede the policy. Where the need arises, the GCEO is authorized to grant exceptions to the application of this policy, and thereafter seek ratification from the NNPC Limited Board. 15.6 References The provisions of the Joint venture agreement shall be applicable to this policy. Other relevant references include:  PIA 2021  International Financial Reporting Standards (IFRS 11)  Supply Chain Management Policy and Procedural Guide 142