INTEREST SETS AND DIVISION OF INTERESTS
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Introduction
The control and management of ongoing business functions within an organization necessitate the storage of vital information. Information is an asset; a data model is essential for managing this asset. PPDM Version 3.7 Interest Set is a business module designed to allow the capture of business objects as they pertain to interest sets.
Interest sets can be captured for contractual arrangements, such as land mineral right lease agreements, and land or joint venture contracts. Interest Set represents “ownership,” whether it is three lessors of a lease each holding one-third percent mineral interest, or three participants in a contractual arrangement (Joint Operating Agreement), each holding one-third working interest in certain land rights.
Tangible items (wells, seismic, facilities, pipeline, etc.) may also have an applicable Interest Set. For example, the revenue for a producing well could be applied one hundred percent to one Business Associate or to multiple Business Associates that total one hundred percent. Owners of facilities that are related to a well, such as a road, may have different ownership than the well.
The Interest Set Business Module can be used by all of the Business Modules in the data model to track the type of interest, all partners in an interest set, the contact person for the interest set, and relationships between interest sets.
Business Process Overview
Purpose
The interest set module is shared by all other business modules to track ownership of business objects such as land rights, seismic data, wells, facilities, documents, support facilities etc. Most of the time, interest sets are defined and set forth in legal contracts between parties. These contracts define interest shares, roles and obligations held by all parties.
Description
The interest set module can be used to define any type of interest set at any stage in the life cycle of a business object. Working interests, production interests, royalty interests and so on are all managed. Interest sets rarely exist in isolation; it’s common for the conditions of one interest set to affect the conditions of another as time and circumstances change. Contractual obligations that are incurred as a consequence of the partnership can be defined, as can burden bearer relationships amongst partners.
Key Business Processes
An interest set is defined whenever business associates establish binding relationships for sharing risks and benefits that are associated with E&P business activities. In the E&P business, partnerships are often formed to manage the assets in a given area of operations; some of all of the surface lands, mineral lands, seismic, wells, facilities, support facilities in an area may be affected by the contractual agreement. Many types of interest sets exist, each supports different aspects of the E&P business and some support management of specific business objects. Some examples follow:
Land Mineral Rights
In a lease agreement, burden bearer (royalty) interest defines who pays what share of the royalty and who receives what share of the royalty. A typical interest set might require ABC Company to pay 100% royalty on behalf of ABC Company and DEF Company. In this instance, the royalty split might be ABC Company 75% and DEF Company 25%. Company ABC will invoice company DEF for its portion of the royalty payment.
Contracts
In a joint venture contract, you may want to capture an Area of Mutual Interest (AMI) interest set. For example, ABC Company and DEF Company are each entitled to a 50% interest for a set period of time in any lands that fall within a certain boundary of the associated land mineral right governed by a joint venture agreement. If ABC Company is given the opportunity to acquire these lands, they must offer DEF Company their proportionate share. Failure to do so could cause one party to be in breach of the other.
Wells
One or more Business Associates may own and participate in the drilling of an exploratory well under the terms of a joint venture agreement. ABC Company, DEF Company, GHI Company, and JKL Company each have a 25% interest in the well. If ABC Company decides to go penalty (not pay their share of the costs), the other three Business Associates may elect to assume their proportionate share (33.3333%) of the drilling costs. The penalty to company ABC may be high – if the well turns out to be profitable and company ABC wants to re-insert itself into the partnership, they will have to pay a penalty first. For example, all costs of drilling the well typically will be recovered by the other three partners, and large (such as 500%) penalty has been paid to the partners, then ABC Company has the right to be entitled to its original 25% of revenue.
Maintenance
An Interest Set may change from time to time through name changes, amalgamations, dissolution, division orders, transfer orders, liquidations, mergers, disposition, changes in roles etc. The maintenance of Interest Sets will not only ensure that a Business Associates’ current interests sets are valid, but will also ensure a historical record of the Business Associates and their associated interest sets. The PPDM Interest Set module provides oil and gas companies, governmental agencies, and data providers with a method and a data structure to manage and store vital interest set information.
