NNPCL Finance and Accounts_Joint Interest Operated Assets PDF

NNPC Limited Finance and Accounts Process and Procedures 14.0 Joint Interest Management (Operated Assets) 14.1 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, wi...

NNPC Limited Finance and Accounts Process and Procedures 14.0 Joint Interest Management (Operated Assets) 14.1 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. 14.2 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 14.3 Policy Statements NNPC Limited and its subsidiaries to make optimum utilisation of resources and achieve synergy through her Joint Ventures Operations. All Joint Venture arrangements shall be backed by a Joint Venture agreement binding on all parties to the joint venture. 126 NNPC Limited Finance and Accounts Process and Procedures 14.4 Procedural Guidelines for JV Management 14.4.1 Management of Joint Interest Arrangement The following guidelines shall apply in the management of JV operated assets:  All JV/JOs 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.  The OPCOM shall comprise members from both the Operator and Non-Operator as defined in the JOA. 14.4.2 Work Programme/Budget Preparation and Review 127 NNPC Limited Finance and Accounts Process and Procedures  Capital and operating budgets shall be prepared in accordance with the Joint Operating Agreement (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;  Budget categories and responsibility /ownership of each category;  Input forms/templates;  Instructions for completing the templates; 128 NNPC Limited Finance and Accounts Process and Procedures  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, 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. 129 NNPC Limited Finance and Accounts Process and Procedures  The Finance Division 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. 14.4.3  Cash Call Management The JV Operator shall be responsible for the preparation of the monthly cash call requests with inputs from all budget owners, current bank position, pending payments and other anticipated cash obligations/ commitments. Cash call requests shall be based on the approved work program and budget.  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.  A standard template shall be used to prepare the cash call request detailing the following:  Opening balances at the beginning of each period (supported by schedule of bank balances);  Cash inflows/ receipts;  Estimated cash outflows;  Estimated inflows;  Incremental borrowing (additional facilities obtained during the period);  Un-utilised facilities/ overdraft; and  Estimated closing cash balance. 130 NNPC Limited Finance and Accounts Process and Procedures  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. 14.4.4  JV Vendor and Contractor Management The Operator shall maintain a list of approved companies for the purposes of contracts for the Joint Operations, (the "Approved Contractors' List"). The Non-Operator shall have the right to propose companies to be included in the list. The Operator (NNPC Limited or its Subsidiaries) shall be responsible for prequalifying any contractor to be included in the Approved Contractors' List.  The approved vendor list shall be reviewed periodically, and inactive/ non-performing vendors archived.  Vendors and contractors shall be licensed to operate in the country and shall be registered with the required regulatory authorities.  Asset owners shall perform a technical evaluation of the vendors and make recommendations to the Contract Department. Nominated vendors will be notified for quotations. The Management Executive Committee (MEXCOM) shall establish a bid evaluation committee. The SCM Department shall be responsible for prequalifying bidders, sending out bid invitations and receiving bids in line with the approved SCM policy and procedural guidelines.  The bid evaluation committee shall evaluate all bid offers. Vendors selected are approved by Management Executive Committee (MEXCOM) based on the result of the technical and commercial evaluation of the vendors. 131 NNPC Limited Finance and Accounts Process and Procedures  The joint venture partner’s concurrence shall be required for contracts that are above the threshold specified in the JOA. 14.4.5 Expenditure Performance Reporting/Review  All commitments to expenditure (e.g., purchase orders) shall be checked against the budget before they are initiated to ensure compliance with the terms of the approved JV budget. The relevant budget balance shall be reduced by the amount of expenditure item to be incurred. The budget holder shall be responsible for ensuring that there is sufficient budget to accommodate the intended expenditures.  All expenditure requests shall be compared to the budget monitoring tool (for each class of expenditure) to ensure that:  A budget exists for the expenditure requested;  The total expenditure to date in addition to pending expenditure requests shall not exceed the total budget for the period in the case of recurrent expenditure; and  The total expenditure to date in addition to pending expenditure requests shall not exceed the total budget for the year in the case of capital expenditure.  All budget owners shall be responsible for the periodic review of their functional budgets to ensure that budget overruns are minimized or avoided. The budget owners shall reappraise budget estimates for the period, in view of current realities and establish justification for budget revision where necessary.  The Budgeting Department or its equivalent shall conduct a budget review session with the relevant budget owners to challenge and agree on revised budget estimates and assumptions.  All budget revisions shall be approved by OPCOM. 132 NNPC Limited Finance and Accounts Process and Procedures  An Annual Performance Review shall be instituted to ensure that the actual expenditures are valid and in line with approved work programme and budget for the year. TECOM shall review and make recommendations to OPCOM for approval of the annual performance report based on the recommendations made by SUBCOM  The Finance Division shall have the responsibility for ensuring that:  Proper accounting records are kept, from time to time as specified in the Joint Operating Agreement (JOA);  The financial system shall restrict the ability of any staff of NNPC to post prior year transaction into the database after the date of closure of the previous year in line with NNPC Limited’s policy on month-end closing.  The following documents may be required in the review of the Annual Performance Report:  Transaction listing;  Contract documents;  Payment documents;  Job completion certificates;  Any other required documents. 14.4.6  Monthly/Annual Management Reporting The Finance Division shall on a monthly basis evaluate its financial performance alongside the budget estimates.  Returns and billing statement shall be prepared on a monthly basis by the Finance Division and forwarded to the budget owners and JV/JO partners.  Monthly returns and billing statements shall detail the analysis of monthly budget estimates against actual expenditure, working 133 NNPC Limited Finance and Accounts Process and Procedures capital, explanations for the identified variances and recommended action steps.  All monthly returns and billing statements must include qualitative and quantitative information and contain a historical trend covering the past and current periods in the financial year.  The monthly returns and billing statement shall contain relevant indices of the operational, financial, and capacity budget performance of other key value adding information to provide partners with an appreciation of the current state of the performance.  Billing statements shall be extracted from the accounting system on a monthly basis. The report shall contain an analysis of actual to budgeted spend and justifications/explanations for significant variances.  The Finance Division shall be responsible for the preparation of the monthly returns/ billing statements detailing:  Analysis of cash inflows (bank statement);  Analysis of cash expenditure (vendor invoices and work orders);  Billing statement (over/under call cash);  Two-month in arrears estimate; and  Cash call due for sign-off. 14.5 Compliance NNPC Limited and its Subsidiaries shall comply with the provisions of the JV agreement, and IFRS 11 – Joint Arrangement, 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) 134 NNPC Limited Finance and Accounts Process and Procedures 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. 14.6 References The provisions of the Joint venture agreement shall be applicable to this policy. Other relevant references include:  International Financial Reporting Standards (IFRS 11)  Supply Chain Management Policy and Procedural Guide 135