Joint ventures are used in the oil and gas industry to diversify risks and reduce capital investments. But just how cost-effective is yours?
Auditing joint venture (JV) activities is crucial for oil and gas companies, no matter where in the world the activities are located. With the right experience on hand, significant cost savings can be found, and important improvements made.
Here are six key benefits of conducting an audit on your joint venture.
1. Cost saving
Your operator runs the field and calls for funds in order to carry out activities on behalf of the partnership. But is your money handled and correctly spent in line with underlying agreements and business practices? As a partner, conducting a JV audit is the only possible way for you to really verify and approve the cost of the services and goods you are charged for.
The operating agreement may outline how the operator can spend your money and to what extent, but errors happen, and they can quickly add up.
It's not uncommon for us to uncover several million dollars in discrepancies when we conduct an audit.
Errors with licences are common, and just one misallocated rig cancellation for example, has resulted in an operator needing to pay back significant costs charged to its partners. By auditing the operating activity, you will receive verification of the cost and most likely see a significant cost reduction as monetary errors are identified.
2. Enhanced business practice
Joint venture accounting is not very regulated and is therefore highly exposed to diverse business practices that an operator may use to obtain a monetary gain on behalf of the partners. Conducting a JV audit will allow you to see the accounting practice in place and challenge the mechanism for allocation that ultimately will represent a cost to your activity.
Industry knowledge and experience is necessary in order to see the mechanism for allocation and ultimately, change the mechanism. TMF Group has the unique experience and in-depth industry knowledge to help your company in the joint venture.
3. A deeper view
Asking questions and receiving detailed information is typically limited to management committees, where it can be difficult to obtain the information and specific answers you're looking for.
JV auditors work closely with the field operator. We collect detailed information about any areas of concern and feed this back to you and your representative in the partnership. It means you're fully informed when it comes to making decisions on past events, and for the future.
4. Accounting improvements
There is always room for process and accounting improvement. During the JV audit, we scrutinise the operator's accounting and processes, making recommendations that ultimately benefit both them and their partners.
5. Accounting information
A JV audit allows you to tap into the deep knowledge and experience of your auditors. You'll get insights into best practice business and accounting before, during and after the assignment that you can implement in your organisation.
If we observe a good cost-saving accounting technique by an operator, we take the information back to our clients so that they can evaluate and possibly use it in their own internal accounting and mechanism for allocation.
6. Measurement allocation
Is the non-operator receiving the liquids they are entitled to – or should they receive a higher share? Discrepancies are more common than you may think.
Measurements audits are a higher margin audit that verify the flow of liquids in an oil field and check this against the partner's allocation. These audits ensure your income share is what it should be.
The oil and gas industry is seeing a shortage of experienced professionals with the right background to conduct this type of audit, but TMF Group has the expertise. We've identified errors of more several million US dollars through faults such as incorrect tank measurements, malfunctioning fuel gas flowmeters and an incorrect allocation of the physical quantities of hydrocarbon.