Oil & Gas JIB: Current Challenges & Future Trends

Anushka Kumar

JIB Oil & Gas

Within a sea of complexities like volatile commodity prices, regulatory uncertainties, geopolitical risks, and technological advancements, the Oil and Gas accounting practice of joint interest billing (JIB) allocates costs proportionately among all participants. This ensures effective JIB allocation and cost sharing.

What is Joint Interest Billing?

Joint Interest Billing Definition: Joint Interest Billing (JIB) is the result of a process of invoicing expenses acquired in an Oil and Gas joint venture to the Non-Operator, based on separate respective ownership percentages. The Operator must accurately track expenses for each property separately and identify any costs eligible for reimbursement by the Non-Operator(s) according to the joint operating agreement or any other relevant governing document. These expenses are then allocated and billed to the Non-Operators based on their respective working interests.

Transparency and Accountability

Drilling operations with multiple partners in the development of the onshore or offshore oil field use joint interest billing (JIB) as cost-sharing arrangements to build transparency and accountability in project expenditures. Maintaining cash flow and ensuring timely funding with cash calls and reimbursements, they provide a well-documented reference point for dispute resolution.

Risk & Reward

The economic benefit of Oil and Gas projects can extend to $1.6 trillion in federal and state tax revenue in the US (US Department of Energy, 2020).¹ However, without risk there is no reward and when it comes to Oil and Gas, risks cover a lot of ground. For one, there is risk in finding commercially viable hydrocarbons. Next comes capital intensity’s long lead times and high costs, global supply and demand dynamics of commodity prices, geopolitical tensions, and finally the risks of environmental regulatory and permitting, to name a few.

Collaborative Investment Models

The good news is that Collaborative Investment Models help to manage risk, shoulder costs, leverage expertise, optimize resources, and maximize returns. Joint Ventures (JVs) of two or more companies pool resources, expertise, and capital to bear exploration, development, or production activities, with shared ownership stakes, project operations and management.

These models include consortia or partnerships formed by multiple companies to pursue new oil fields or construct infrastructure beyond individual capabilities. Also, Farm-ins and Farm-outs enable portfolio expansion and risk-sharing -- where a "farmee" acquires ownership interests from a "farmer" in exchange for cash payments or commitments to fund exploration and development. Another model is a Production Sharing Agreement (PSA) which involve governments partnering with companies to bear costs and share profits from oil or gas production, while unitization consolidates adjacent reservoirs for efficient production. Additionally, infrastructure sharing combines assets like pipelines and terminals to reduce costs and environmental impact while improving operational efficiency.

To manage collaborative investment models by well or by project, Quorum Software’s On Demand Accounting product provides functionality to create and maintain division of interest for expenditures commonly referred to as expense decks which include each partner’s interest decimal to calculate their related share of expenses.

AFE, CAPEX, & LOE

AFE Oil and Gas

An Authorization for Expenditure (AFE) is a crucial aspect of the Joint Interest Billing (JIB) process in providing transparency. Oil and gas operations use this as a comprehensive list of the projected costs and scope of a specific project or well. As detailed budget proposal delineating all anticipated expenses for drilling, completion, and related activities, AFEs provide partners with transparency regarding financial commitments and allow for unbiased cost allocation for stakeholders. With all expected expenditures presented upfront, AFEs facilitate informed decision-making and efficient management of resources throughout the project lifecycle.

Quorum Software’s On Demand Accounting product provides functionality to facilitate the operator's management of the budget and actual costs associated with an AFE. The included Accounts Payable Workflow functionality facilitates coding of AP invoices and routing for approval. Also available for On Demand Accounting is direct integration with Quorum Software’s Execute AFE solution which facilitates internal and external review and approvals among other features.

CAPEX Oil & Gas

Included within AFE documents, Capital Expenditure (CAPEX) are funds allocated for the acquisition, exploration, and development of assets such as drilling rigs, production facilities, and pipelines. CAPEX are significant investments made to expand operations and the documents help set financial obligations and cost allocations for Joint Interest Billing (JIB). They outline anticipated costs and scope of the projects and serve as the basis for calculating each partner's share of the expenses. CAPEX projects in the oil and gas sector typically involve long-term planning and substantial financial commitments, as they play a vital role in sustaining and growing the company's business. Like any other good report, they ensure transparency, fairness, and accountability among stakeholders, facilitating efficient collaboration and investment in oil and gas ventures.

Quorum Software’s On Demand Accounting product provides functionality to issue and track cash calls to partners to contribute funds to capital projects.

LOE Oil & Gas

Just like including maintenance in the cost of owning a home or car, Lease Operating Expenses (LOE) in Joint Interest Billing (JIB) covers costs associated with the day-to-day operation and maintenance of producing wells and related facilities within a lease or field. LOE expenses typically include labor, equipment maintenance, utilities, insurance, regulatory compliance, and other operational expenditures needed for efficient and safe well production. Within a joint venture, partners share these operating expenses based on their respective ownership interests in the lease or field.

Key Players in Joint Interest Billing Oil and Gas: Operators
and Non-Operators

Operators

The two major players in a JIB are the Operators and the Non-Operators. Responsible for managing the day-to-day operations of the joint venture, an operator oversees planning, execution, and supervision of all activities. They have technical expertise and can execute exploration, development, and production activities. Administrative tasks like accounting, reporting, and communication with regulatory authorities and partners all belong to operators.

Operators may be subject to a Joint Venture Audits by Non-Operators, or their agent as outlined in the joint operating agreement (JOA) or governing documents. In the case of a Joint Venture Audit, On Demand Accounting includes the functionality to produce a Joint Audit Data Exchange (JADE) file to facilitate the audit process.

Non-Operators

Holding ownership interests in the project with no operational control, non-operators contribute capital, expertise, or other resources to the venture. They could participate in decision-making processes related to the joint venture, including major investment decisions, as outlined in the joint operating agreement (JOA) or governing documents.

Challenges in JIB Accounting

Specialized accountants head up JIB and as such they must handle elaborate processes, lengthy statements, address practical challenges, print and mail costs, and transit. One way to ease the pain of this process is to transition to digital JIB management.

Transition to Digital JIB Management

Transitioning out of paper-based JIB statements into cloud-based digital management introduces efficiency, scalability, and visibility into cash flow. Certain software can offer secure 24/7 online access to Oil and Gas owner statements and account information. It streamlines revenue matching and well-level analysis, breaking down payment audits and cutting out manual processes.

Technology and JIB Management

There is software, and then there is the cloud. Using technology within the cloud makes significant impacts to the JIB process. Using technology and the cloud to assist the process of JIB takes on several forms and makes a variety of differences. Let’s take a look at what those could entail, below.

Digitalization and cloud adoption makes the following differences for Oil and Gas accountants handling the Joint Interest Billing (JIB).

Accuracy Advanced algorithms automate complex calculations.
Collaboration Integrations of financial data cuts manual data collection and entry.
Compliance Automated comprehensive audit trails, document every step.
Decisions Identify trends and optimize operations.
Processes Avoid paper documents and mailouts with digital invoicing.
Risk Unauthorized access is reduced for sensitive financial data.
Reporting Automated reconciliation processes in real-time.
Scaling Simplify resources for high volume transactions.
Time Processing errors are cut with security and efficiency.

Future Trends

So many innovations are happening now and yet there is more to come. Future technology trends should continue to transform the Joint Interest Billing (JIB) process. For instance, the integration of analytics and business intelligence technologies, alongside Artificial Intelligence (AI) and machine learning (ML), will continue to empower financial professionals in extracting valuable insights from vast datasets.

Future challenges, just as they do now, will continue to exist. There are biases inherent in AI systems that could potentially reinforce existing inequities and prejudices, muddying analytics. But there are a few trends we can expect to improve, which should have a direct, positive effect on JIB.²

Predictive analytics for forecasting will keep refining itself. Through accelerating innovations, it will protect risk management strategies and continue to enhance fraud detection capabilities.²
Cloud-based Enterprise Resource Planning (ERP) systems have strong potential to continue to keep getting better. As they streamline operations, eliminate redundant procedures, and automate routine tasks for greater efficiency, what they do now will only improve.²
The cloud will play an increasingly pivotal role in enhancing JIB processes, linking applications, automating business workflows, and ensuring smooth data exchange across platforms.²

Best Practices for Effective JIB Management

Prioritizing transparency, aligning stakeholder interests, maintaining accuracy, and efficient dispute resolution mechanisms are the best ways to build a strategy to address JIB challenges. Most importantly however, is a company’s need to embracing digital JIB management solutions can help achieve objectives.

Watch this on demand webinar to see how software that leverages the cloud, purpose-built for JIB accounting improves your accounting operations.

Learn More

Successful digital JIB management with the right tools has the transformative power of enhanced transparency, improving accuracy, and expediting dispute resolution. Quorum Software can demonstrate the tangible benefits of embracing digital solutions that transform the business of energy. Request a demo for help with your next big project.

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References