SAP PRA is used by companies for managing their production and revenue accounting for upstream processes.. Let’s understand what is PRA with an example.
Two companies ConocoPhillips and ENI petroleum form a joint venture, and they start preparing to drill for a well. The well is going to be dug in the land of a farmer who will be a royalty owner. As a royalty owner, the farmer will get a percentage for letting these companies drill in his land and doesn’t participate in any of the activities. They agree that the proceeds from the well will be split 50/40/10.
If the well starts producing meaning it isn’t dry, and there is oil and gas coming out from it, the operating company needs to first measure how much crude oil this well is producing. All this information requires setting up master data like fields( where is this well located), reservoirs, wells, etc.
To start measuring the crude oil and natural gas, companies would need equipment. These are known as measurement points. The crude oil and natural gas is observed or recorded at these points. The daily transactions are recorded at these measurement points. How much crude oil was extracted, what kind of crude was it and other info about it. Let’s assume that you extract 100 barrels from the well and you sell it for 60$ a barrel.
The total proceeds from it would be $6000. This price of $60 a barrel would be in a contract that would be set up in SAP. There might be marketing costs and other costs associated with it. E.g. if these costs are $500, then the total revenue to be distributed would be $6000-500= 5500. This $5500 needs to be split between the partners in the percentage of 50,40 and 10. ConocoPhillips would get $2750, ENIpetroleum would get 2220 and the farmer( royalty interest owner would get 550)These checks/wires need to be sent out through SAP. These companies need to report to the government on their oil and gas production, and taxes need to be calculated. This tax and royalty calculation needs to happen in SAP PRA as well. I have oversimplified the process to make it easy to understand. Below, you will find more details about these topics.
Submodules within SAP PRA
To learn PRA, there are quite a few topics to understand. This requires a lot of information about the business processes as well.
PRA can be broken down into
- Contracts and Pricing
- Revenue Accounting
- Tax and Royalty reporting
All the modules are interconnected. A mistake in module 1 could affect all the other modules, and you won’t find out till later on, so it is very important to understand all these modules well.
SAP PRA training
When a company drills for oil, we need to first identify how much oil each well is producing. There might be 100’s of wells right next to each other. Each of these wells could have a different owner or a different percentage of ownership, so if we record 1000 BBLS of oil at a measuring point, we need to know how many of these 1000 were produced from well A and how many from well B and so on. Production deals with the allocation of these quantities back to the wells. Within production, we have the following steps setting up of master data like wells, etc. ->Establish allocation rules->enter the transaction data of how many bbls were recorded->allocate and report volume data-process prior period adjustments-prepare regulator reports for production within master data, we have Producing entities, well completions, measurement points, and delivery networks.
PRA ownership deals with setting up the different partners that take part in this venture. These are the partners to whom the operator needs to send payments from the proceeds of the oil and gas sales. There can be different types of owners1- Royalty owners2-Mineral owners3-Working interest owners4-Royalty owners 5-Carried interest owners once the partners are set up in the venture, you need to set up the share of each of these partners. This is similar to the partner shares that you set up in JVA in the equity group.SAP will use this percentage to distribute the revenues. Once the ownership is set up, it is linked with the Measurement point and well completion. Each phase in SAP PRA has to be linked back to the previous one.
SAP PRA-Contracts and pricing
Oil refinery petrochemical industry plant
Contracts and pricing have the details of the pricing conditions and any other contract information that will be used to process the PRA ventures. The contracts can be set up at a very complex level. A simple example of a contract would be oil volume * oil price = total sales price. If the company sells a 100 barrels at 65$ each, then the customer owes them $6500 These contracts can get pretty complex, and PRA can support these complex formulas.
Workers, machinery, oil and gas industry
After you have sold the 1000 barrels, now you need to figure out how much you need to pay each of the partners. Some of the partners are royalty owners, and others might be working interest partners that are also in the JVA module.PRA integrates with JVA as, e.g. if, you need to pay a partner $1000, but that partner is on the JVA, then rather than paying this partner out of PRA, you send over the revenue information to JVA, and the JVA module handles this through convenience netting. Just like you would pay vendors through F110, PRA has a program which will pick up the partner line items and pay them.
PRA-Royalty and tax reporting
Plumbing Equipment On House Plans
The royalty owners need to send reports which will show the details of how much money you paid them and how much was the total sale volume etc. Basically, you need to let the royalty owner know that you have paid him the right amount. Similarly, you need to pay taxes to the government. There are various types of taxes, and it depends on the region the well is in. E.g., You need to calculate the total volumes produced and based on that you need to fill out tax forms and pay the government.
These are some basics about PRA. There are a lot of steps in PRA, and it isn’t the most straightforward module as one error in the first module gives an error in module 5, e.g. and, you have to figure out where the issue is. You can’t just google any error message as there isn’t much information on this online. Since it is hard to learn and not many know this area, it is a great area to get into. The oil and gas companies have huge budgets, and the PRA/JVA projects usually last a long time. If you can master these business concepts, then you can get a great career in the oil and gas field.
Leave a comment below if you want to learn JVA or PRA.