CHAPTER 7 EXHIBIT "C" TO OPERATING AGREEMENT—ACCOUNTING PROCEDURE JOINT OPERATIONS
| Jurisdiction | United States |
(May 1990)
EXHIBIT "C" TO OPERATING AGREEMENT—ACCOUNTING PROCEDURE JOINT OPERATIONS
Oryx Energy Company
Dallas, Texas
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COPAS Form Omitted From Electronic Version
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The Council of Petroleum Accountants Societies published in 1984 an updated COPAS. The COPAS is attached to the JOA and establishes an accounting procedure to be used in exploring, developing and operating within the Contract Area.
Section I.3.
Section I.3.A. has been revised so that it is now consistent with Article VII.C. of the JOA. Pursuant to this provision, the Operator may require that Non-Operators advance their estimated cash outlays for the succeeding month's operation within fifteen days after receipt of the billing or by the first day of the month for which the advance is required, whichever is later. Although Non-Operators are contractually given in certain circumstances only fifteen days to advance payment, this requirement is often not met. For many of the larger companies, the interval payment processes may not be able to pay invoices within fifteen days of invoice.
Cash advances are customarily requested in the face of major expenditures. For example, advances are usually required when developing large on-shore units. Small Operators who cannot easily fund on-going operations, will often make use of the advance provision.
Section I.3.B. has been amended to require the insertion of the name of a bank. Rather than use a fixed interest rate as did the 1974 COPAS, the 1984 COPAS imposes an interest rate which is 1% above the prime rate, unless the state's usury laws impose a lower rate. The variable nature of the rate should provide the requisite incentive for Non-Operators to timely pay their proportionate share of expenses in times of high interest rate. In most circumstances, the prime rate plus 1% should be increased to prime plus 2% or 3% or 5%. Unless the interest rate is sufficiently high, it may be difficult for the Operator to enforce the timely payment of bills. Non-Operators have and can opt to pay the specified interest penalty rather than timely pay their proportionate share of expenses. Having said this, interest is not commonly imposed or demanded.
Section I.4.
Non-Operators have twenty-four months from the end of the calendar year in which a bill or statement has been submitted to audit and make claims on the Operator for any exceptions to such bill or statement. The failure to raise an objection or exception within such twenty-four month limitation period, is construed as a deemed acceptance of the accuracy and correctness of a bill or statement. Although the language does not mandate any level of specificity, the claim or exception should be specific enough to clearly identify the areas challenged.
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Section I.5.
The revised language encourages Non-Operators to conduct joint audits. Audits must be conducted within 24 months following the end of a calendar year. The revised language clarifies that the cost of joint audits will be borne by the Non-Operators who approve an audit and that audits will not be conducted more than once a year and with the approval of the Operator, except upon resignation or removal of the Operator.
Section I.5.B. was added to encourage Operators to respond to audit reports in a timely fashion. Unfortunately, no penalty is imposed for failure to meet the 180 day reply period.
Section I.6.
Where approval of the Parties or Non-Operators is mandated, any agreement or approval of a majority in interest of the Non-Operators shall be controlling on all Non-Operators.
Section II.1.
This provision was adapted from the 1976 Offshore COPAS. It provides that all ecological and environmental costs are to be charged to the Joint Account. In light of society's increasing emphasis on environmental issues, this statement will likely take on greater importance.
Section II.2.
This provision recognizes that in many situations the Operator will pay all or a portion of the rentals and royalties owned by Non-Operators and that such charges are to be made to the Joint Account.
Section II.3.A.
This provision defines what labor expenses are to be charged to the Joint Account, if so elected by the parties pursuant to Section III.1. In summary, salaries and wages (benefits) of field employees...
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