The Material Balance Report is an Accounting Voucher that is unique and has the following characteristics. It is designed to automate the production, revenue, royalty, marketing and other processes of producer firms and Joint Operating Committees. It is this type of specialized use of an Accounting Voucher that our user community should consider applying to other situations when contributing to the Preliminary Specification.
What is proposed in the People, Ideas & Objects Material Balance Report is that for an Accounting Voucher to close it must balance the financial debits and credits. However, it must also be from a volumetric perspective material balance, system balance and partnership balance. Each of these volumetric perspectives is accessed through a different “mode” within the voucher. This is to make the necessary changes to correct any volumetric imbalances or errors in that specific perspective.
The Joint Operating Committee exists as a result of legal agreements and in oil men and women's minds. It therefore doesn’t “own” anything or incur costs. All joint account charges must clear in the month they are incurred to the producers involved. It is the same for volumetric information. The Joint Operating Committee "Accounting Voucher" balances to zero in terms of costs and volumes each month by clearing its charges, volumes and inventories with the partnership and royalty owners of the property. Clearings are done after the balance is reached. That does not guarantee that the facility will remain in balance. Adjustments and amendments to the Accounting Voucher may occur. These may happen and they can be balanced and cleared to partnership accounts in the same manner as before. The Preliminary Specifications Material Balance Report generates the subsequent automated filing of amendments and adjustments automatically. The point of the exercise is to have the Joint Operating Committee's business captured in the Material Balance Report. This is an integral part of the Accounting Voucher. Essentially all three are the same thing, the Joint Operating Committee, Accounting Voucher, and Material Balance Report. An integrity of reporting embedded within accounting that is as rigid as debits must equal credits.
We now want to discuss the contracts associated with that Joint Operating Committee. Contracts that include marketing for gas, oil, natural gas liquids, or contracts for gathering, processing charges. If a stream of product flows through a facility, a contract for processing or sale would be attached to it. The ability to attach the contract to a stream would enable the Accounting Voucher to establish the billing of gathering or processing charges / sales for that stream. These charges (invoices) or sales (receipts) and all the follow on, subsequent processes are generated automatically by People,Ideas & Objects Material Balance Report.
The Accounting Voucher is for lack of a better term a template that is built upon as time passes. Each month as the property changes, these changes are captured within each Accounting Voucher. The template is renewed each month with the accumulation of the properties history. If an additional contract was added for production from an additional well, that contract stream and the newly added well would be represented in the next month's Accounting Vouchers. The Accounting Voucher template documents the property changes over time. To ensure that the appropriate understanding of the properties configuration is achieved, an archive of the templates will be available for adjustments to prior periods.
Critical to the “definition and design” of transactions is the fact that they balance themselves out. If the debits and credits were not in balance at the end of the day, the automation of the systems and the accountants would not be doing their jobs. Volumetric reporting is no different. If in the Material Balance Reports, they were out of balance (call this material balance), or were not balancing the inputs and outputs to other Material Balance Reports (call this system balance), or the internal accounting of those volumes to the partners, royalty holders and others were out of balance (call this partnership balance) the accountants and systems would not be doing their jobs. In closing an Accounting Voucher, not only will the debits and credits need to be balanced from a financial perspective. They will also need to ensure that the material, system and partnership volumes reported in the Material Balance Report are also balanced. Without these systems in balance, the Accounting Voucher will not clear or close.
This imposes another rather strict condition on the quality of the information accepted into the People, Ideas & Objects Accounting Voucher module. Precluding the acceptance of a voucher due to the inability to balance a volumetric requirement holds the system up for what could be a common occurrence. What if volumetric information is unavailable? What if the information is part of the normal amendment process? Then we are left with traditional accounting methods for these types of issues. An accrual of the volumes needed to achieve the necessary balance should be processed in the current month. Most production processes are amended for up to 90 days. These accruals would then be automatically reversed in the following month's Material Balance Report. What is different from existing systems is that we force them to be volumetrically balanced. Not just inputting key variables but imposing and enforcing the facts of what actually happened at the Joint Operating Committee. If it is subject to a comprehensive Construction, Ownership and Operation agreement, what is agreed to be accounted for before the close of the Accounting Voucher.
The difference may be subtle but the implications are significant. When this level of unquestionable integrity is achieved, automated processes based on those volumes can begin, and they can be assured of being based on the information and data collected in other modules.
There are many aspects of this system's management of these processes that are unique and necessary. The reason they have not been undertaken is the broad scope and scale of the software development is comprehensive and beyond what Information Technology could achieve a decade ago. It is certainly from a budgetary perspective beyond the scale of what one major producer could undertake as the value gained may not necessarily be there for the individual producer to incur the entire cost, and most certainly well beyond the standard approach of an oil & gas ERP software development solution provider.
By aggregating North American producers' budgets, People, Ideas & Objects proposes a shared infrastructure cost. Incurring these software development costs once for the entire North American producer population. People, Ideas & Objects cost of oil & gas administration and accounting are variable costs based on profitable production. Delivered through our Cloud Administration & Accounting for Oil & Gas software and service. Those with a comprehensive understanding of these processes will fully appreciate the points I make and the implications involved. My understanding of these processes is comprehensive and I know it can be done correctly. And to do so from the point of view of dealing with the contractual arrangement as dictated by the governing agreements. This is to determine production allocation methods. If the agreement refers to either a legal or a chemical composition as the basis of production allocation, both of these methods will be available in the Material Balance Report of the Accounting Voucher in an either, or a mixed environment.