NNPC Limited Finance and Accounts Process and Procedures PDF

NNPC Limited Finance and Accounts Process and Procedures 16.0 Production Sharing Contracts and Service Contracts 16.1 Objectives NNPC Limited Production Sharing Contracts (PSC) and Service Contracts (SC) are guided by the PSA. The PSA serve as a reference point for each party’s rights and obligatio...

NNPC Limited Finance and Accounts Process and Procedures 16.0 Production Sharing Contracts and Service Contracts 16.1 Objectives NNPC Limited Production Sharing Contracts (PSC) and Service Contracts (SC) are guided by the PSA. The PSA serve as a reference point for each party’s rights and obligations to the assets and liabilities. The purpose of this Policy is to ensure  Adherence to the contractual terms of the PSC and SC agreements;  Adequate oversight and prudent management of PSC and SC operations 16.2 Scope/Applicability This Policy covers the following:  Oversight and management of PSC and SC operations;  Work program and budget review;  Expenditure performance review;  Annual cost verification exercise;  PSC & SC cost recovery process  Accounting and reporting. 16.3 Policy Statement NNPC Limited and its subsidiaries shall make optimum utilisation of resources and achieve synergy through her PSC and SC Contractor. All PSC & SC operations shall be guided by the PSC and SC agreements. The PSC and SC agreements shall serve as reference points for each party’s rights and obligations to the assets and liabilities of the production sharing and service contracts. 16.4 Procedural Guidelines 144 NNPC Limited Finance and Accounts Process and Procedures 16.4.1 Oversight and Management of PSC and SC Operations NNPC Limited and its Upstream Subsidiaries shall apply the following guidelines in managing PSC and SC operations:  A Management Committee (MACOM) shall be established for the purpose of providing orderly overall supervision, control and direction of all matters pertaining to the contract. The roles and responsibilities of the MACOM shall be clearly defined in the PSC and SC to include the following:  Approval, revision, or rejection of all proposed work programs and budgets;  Approve the selection, scope, timing and locations of all wells and facilities for production sharing and service contracts, as well as 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, procedure and methods of the production sharing and service contracts;  Ensuring that the contractor carries out the decisions of the Management Committee; and  Establishing other sub-committees for the handling of technical, financial, and other operational matters.  The MACOM shall comprise members from both the concessionaire (NNPC) and the Contractor as defined in the PSC and SC. 16.4.2 Work Program and Budget Review Guidelines  Within two (2) months after the effective date of the PSC or SC and thereafter at least three (3) months prior to the beginning of each calendar year, the Contractor shall prepare and submit for the approval of the MACOM, a Work Program and Budget for the contract area setting forth the petroleum operations which the Contractor proposes to carry out during the ensuing year, or in case 145 NNPC Limited Finance and Accounts Process and Procedures of the first Work Program and Budget, during the remainder of the current year.  The budget and work programme shall contain an itemised estimate of revenue to be received and expenditure to be incurred during the applicable year and shall:  Identify revenue sources in sufficient details;  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 review the budget and oversee the PSC/SC activities for each year:  Sub-Committee (SUBCOM);  Financial Committee (FINCOM);  Technical Committee (TECOM); and  Management Committee (MACOM).  The budget guideline shall provide general guidelines/direction for budget preparation and shall 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; 146 NNPC Limited Finance and Accounts Process and Procedures  Instructions for budget submission;  Method of budget collation; and  Target overall increase/decrease in expenditure.  The Sub-Committee (SUBCOM) shall conduct a review session(s) to engage and agree the work programme and budget estimates/assumptions and ensure alignment with corporate objectives/government aspirations.  The FINCOM is typically made up of Finance/Planning department Divisions and its major function is to consolidate the budget/performance recommendations of all SUBCOMs and forward same to TECOM.  The Technical Committee (TECOM) shall be responsible for the review and recommendation of the consolidated draft budget for MACOM consideration and approval.  The authority to approve the work programme and budget shall rest solely with MACOM subject to recommendations by SUBCOM and TECOM.  The Budget Department in Planning & Strategy Division is responsible for uploading the Budget into SAP.  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 MACOM. The Finance Division shall also be responsible for releasing the budget for utilization in line with the approval limits.  The budget revision requests shall be reviewed by the respective SUBCOMs and TECOM, to be approved by MACOM within the stipulated timeline as stated in the PSC and SC. 147 NNPC Limited Finance and Accounts Process and Procedures  The respective Heads of budget/planning for NPDC and NAPIMs shall be responsible for coordinating the budget revision and approval processes for their respective PSC and SC arrangements.  All unbudgeted expenditure shall have the concurrence of the concessionaire before such expense is incurred. The budget owner shall be responsible for obtaining all requisite approvals for such unbudgeted spend through MACOM approval process. 16.4.3 Expenditure and Performance Review The following guidelines shall apply when assessing the performance of the budget: Monthly Performance Review  Performance reviews shall be conducted on a monthly basis. Expenditure returns shall be submitted by the contractor in line with the provisions of the PSC and SC agreement.  SUBCOMs shall review the reported expenditure submitted by the contractor on monthly basis and make recommendations to FINCOM for collation.  The approved expenditure returns shall be shared with the relevant departments for monthly crude allocation purposes. Quarterly Performance Review  Performance review shall be instituted to ensure that reported quarterly and annual performance aligns with approved work programmes and budgets for the year.  SUBCOM shall review the reported performance submitted by the contractor and make recommendations to TECOM.  FINCOM shall consolidate the recommendations of all SUBCOMs and forward same to TECOM. 148 NNPC Limited Finance and Accounts Process and Procedures  The Technical Committee (TECOM) shall be responsible for reviewing the consolidated annual performance of SUBCOMs and endorsing same to MACOM for consideration and approval. 16.4.4  Annual Cost Verification Exercise The cost verification team shall review and analyse the transaction listings based on reported performance. This shall be followed with all the supporting documents backing up all expenditure reported for the period. Cost Verification exercises shall (where applicable) be in line with the provisions of the PSC.  The cost verification team shall hold a close out meeting with the contractor at the completion of the verification exercise in line with the PSC agreement. The minutes of the close out meeting shall be jointly signed by the team and the contractor.  The cost verification team shall upon completion, submit their report/recommendation to the Head of Finance for review. After the review, Head of Finance shall present the report/recommendation to MACOM for ratification and approval.  If MACOM is able to ratify and approve the report/recommendation of the cost verification team within the stipulated time frame as per the PSC, the Joint Entitlement Model (JEM) shall be updated with final outcome of the Cost Verification Process. But if MACOM is unable to ratify and approve the report/recommendation of the cost verification team within the stipulated time frame, an independent auditor shall be appointed in line with provisions of the PSCs. The JEM shall be updated with final outcome of the review of the independent auditor.  Cost recovery on each contract shall be carried out in line with the provisions of the PSC. 16.4.5 Monitoring and Reporting 149 NNPC Limited Finance and Accounts Process and Procedures  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 PSC and SC operational and financial performance reports in line with the management reporting framework.  All operational and financial performance reports shall include historical trend covering the past period and report to date in the financial year. Accounting entries to be recognised with respect to exploration and production costs and other expenditure items are contained in the NNPC Limited’s Accounting Policy manual. 16.5 Compliance NNPC Limited and its Subsidiaries shall comply with the requirements of the PSC and SC and the International Financial Reporting Standards (IFRS) for classifying, recording, and reporting financial transactions arising from the PSC and SC. Where there is a conflict between the requirements of this policy/procedural guide and the PSC or SC, the requirements of the PSC or SC shall supersede the policy and procedural guide. 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. 16.6 References The provisions of the PSC and SC shall be applicable to this policy. Other relevant reference includes NNPC Limited’s Accounting Policy. 150