Operated Cash Calls with Energy Corridor
Operated cash calls with Energy Corridor are simple. This post tells you how to cash-call non-operating partners in a joint venture project.
Cash calls are used when you have a joint venture capital project. The operator of the project would cash call non-operating partners for their share of expenses the project is expected to incur on their behalf. Essentially, you’re asking them to pay upfront for their share of the project.
Operated Cash Calls
Operated cash calls with Energy Corridor are simple. In this case, we have an authorization for expenditure (AFE) to equip a well. The total budget for the AFE is $94,200. We have two partners, each with a working interest percent of 25%, which means their budgets are $23,550. That is the amount that they’re expected to contribute to the project.
So, we’re going to cash-call Questfire. This project is starting in January, so that’s when I’m going to cash call them. To see the effect of the cash call, we’ll look at the voucher — that is, the voucher generated from the cash call.
You can see that we’ve debited the 1435 cash call receivable account, so that’s the amount you’re expected to receive from Questfire, and credited the 6310 cash call payable. The cash call payable is a liability that will be drawn down as the operator incurs the expenses. Now, when you make a cash call, generally you’ll invoice the partner. So you create an invoice, and when you receive payment for that invoice, the entries are a credit to the 1435 cash call receivable, and you debit your cash account. So that, in a nutshell, is the basic cash call and how to handle it.
Joint Interest Billing
Now, to see the effects of the cash call, we’ll run our joint interest billing (JIB) for January. The project started in January and has been incurring expenses. For Questfire, you can see that they won’t owe anything this month because of their cash calls. So, there’s their cash call. These are their share of the expenses for the month and because the $4,500 is covered by our cash call, you can see that they are not billed anything for January.
Now, to make this a bit more clear, we’ll run the JIB for February, and you will see that the cash call amount has now been drawn down by January’s expenses. It’s been drawn down from the $23,550. Again, expenses for February, $3,200, result in no billing because the cash call covers it. Eventually, your cash call will be exhausted and billing will commence.
So, that in a nutshell, are the cash call basics. Of course, there are many situations that occur that you need to account for. For example, projects are usually over or under budget. Refunds and additional funding requests are common. Partners don’t always pay the full cash call amount or pay too much. We provide more information on these situations in our post Operated Cash Calls.
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