Top 4 reasons to Implement Production Month Capabilities:
1. Accurate Billing of Partners
The assignment of the correct equity group is based on the Document Date on the FI document header. However, when you post allocated costs to the well in SAP, the Document Date from the original source documents is lost. By activating Production Month, the assignment of the correct equity group is based on the Production Date entered at the line item level. More importantly, the JV allocations maintain the original Production Month on the costs allocated to the wells. Therefore, the system selects the correct equity group based on when the costs were incurred instead of assuming all allocated costs were incurred in the current month.
2. Accurate Lease Operating Statement (LOS) reporting
In order to accurately report profit margins by month, it is important to report both the revenue and cost the same months as the activities occurred, rather than in the months they were entered into the system. Without activating Production Month, this is available for gross (8/8ths) costs, but not for allocated costs. With Production Month activated, however, this is possible for all gross and net cost reporting.
3. Accurate Accruals
Having the ability to account for net costs with the correct production month also allows you to better analyze your accruals since you can see your actual net costs by production month and compare that to what was originally accrued.
4. Accurate Reporting to Partners
Since many Oil and Gas companies have systems that maintain accurate cost reporting by production month, they expect to also receive costs by production month from their operators. This functionality ensures you are meeting the expectations and reporting needs of your partners, and avoids frustration with you as the Operator.
Click here to read ‘Part 1’ of this topic.