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The fiscal relationship between the government and the contracting company is specified in a production sharing agreement or contract. The agreement specifies the rights and obligations of the parties, and it provides the formulas to be used to compute the various amounts involved.

In return for the right to pursue a petroleum production project in a country, a contracting company typically agrees to pay the government a royalty on production. This royalty payment is computed on gross production volume or revenue before any costs are deducted. In return, the contracting company is entitled to recover the costs it incurs on the venture.

The amounts the company can recover during any accounting period for various types of costs are stated as a percentage of either total production or production after deduction of the government’s royalty.

When the government’s royalty and the costs recovered by the contractor have been deducted from production volumes or revenue, the resulting net profit is then distributed to the parties on a percentage basis. The SAP Production Sharing Accounting system (PSA) supports the reporting requirements for government royalty and contracting company cost recovery of petroleum exploration and production projects that oil companies undertake in developing countries.

Diligent sets foot in this sphere by helping their clients attain:

Model business blueprint based on variable business requirement such as
  • Country Specific reporting requirement
  • Country specific Cost & Profit petroleum requirement
  • Royalty processing
Position papers on
  • Master data Design
  • PS & CO Integration
  • Asset Accounting
  • Period end process
Model configuration document for
  • Roll Up rules
  • PSA Calculation rules & Schema
  • Validation & Substitution
Customized programs for
  • India specific profit petroleum calculation
  • DGH Reporting