The majority of the financial aspects of a New Venture are outside the scope of the Country Management. There are however a few issues which are the responsibilities of the Country Manager: Manual of authorities, Tendering procedures, The chart of accounts, Budgetting, Cost reporting and Petty cash.

1. Manual of authorities

The manual of authorities defines the financial authority allocated to each posiition and should addressy:

• payments under an agreed contract and "ad-hoc" payments/commitments.
• expenditures inside and outside a staff members area of responsibility.
• authority given to contract holders in their own area in relation to the value of the contracts for which they are responsible.
• Authority to committing the Company to an expenditure – whether a contract is in place or not (e.g. a decision to take an unplanned wireline log must be made at an appropriate level).
• the list of people who can authorise a flight. Generally it should be restricted to those who can judge whether the journeys of potential passengers are really necessary, probably only the Drilling Manager during the drilling phase and the Civil Engineer during the construction phase if it is a land operation.
• that the approval for named passengers to travel once the flight is approved can only be given by the passenger's department head or contract holder.

2. Tendering procedures.

Note that it may be convenient if the General Manager is not on the Tender Board so he has the possibility of over-ruling the tender board recommendations.

3. The chart of accounts

The Chart of Accounts is the list of accounts codes to be used. It must be set up at the beginning of the seismic phase by a Finance Manager without drilling experience and who will not know how the future drilling related contracts will be structured.

The Country Manager should define exactly what figures are needed from the system each month, at the end of each well and at the end of the campaign.

The structure of the chart of accounts should be compatible with the way in which the amounts will be presented in the invoices, otherwise the approver will be inconsistent in applying the codes and the totals will be meaningless.

The first critical action in producing a useful cost report is to ensure that the contracts specify the cost elements in a way which is compatible with the result required.

Mobilisation items should be made clear in the definitions of the accounts codes in the chart of accounts.

It should be clear whether mobilisation is charged to the first well and demobilisation to the last, or whether they are shared among all wells.

It should be clear where mobilisation of company material ends (in particular casing) and where local transport commences.

The principal storage area should be defined. All transport costs to this point are charged to the casing, increasing its book value. All transport costs thereafter are charged to the well in progress. All departments should be clear about the implications of the definition of transport costs.

The Chart of Accounts should make a clear distinction between the Central Office Service Fees and the Central Office direct charges. At the Company budget level the Service Fee can be treated either as an overhead in the same way as the GM salary, signature bonuses, concession licence fees, office rentals, etc. or as an operating cost included in the relevant Seismic and Drilling elements of the budget.

It is important to note that some Central Office costs may be cost recoverable and other not.

4. Budgetting

The budget approval process is the responsibility of the Finance Manager, but the figures for the drilling activity are provided by the Country Manager. The accuracy of the estimate will evidently improve with time, but the final exploration costs can never be estimated confidently until the well is abandoned.

In the early stages it is better to over-estimate than under-estimate, but this should not be overdone. An effort should be made to include every specific element of the possible expenditure, no matter how approximate, rather than having a large "miscellaneous" entry. In the same way the use of "contingency" items should be avoided - uncertainties should be allowed individually in each item. This way cost estimates can be properly justified. This is particularly important when discussion will occur with the government on the subject of cost recovery.

The cost estimate made for budget purposes should be based on the elements which invoices will be made up from. This may not be possible for budgets applied for prior to the tendering process.

The Central Office Service Fee and the direct charges must be included in the budget. The amount of direct charges will depend on the results of the well and should not be under-estimated. For "average" wells, consider $500,000 plus $50,000 per operating string month.

Even after a budget has been approved the cost of the operation should be continuously compared with the budget (weekly report) so that if a significant difference is developing between budget cost, procedures should be initiated to revise the budget.

5. Cost reporting

Monthly reports

The cost-to-date must be reported in the Monthly Progress Report. This cost includes actual expenditure to date, the value of invoices received but not yet paid (accounts payable) and the value of work already done by the closing date but not yet invoiced (accruals). Note that commitments for future expenditure are not included.

Accounts are in control of expenditures and accounts payable, and accruals obtained from Operations. The Country Manager must keep good records of the work done and materials used and their values.

If the Finance Manager will accept it, the most convenient method of calculating accruals for the Operations is to take the total cost of operations to date as calculated by the Country Manager and subtract the actual expenditures and accounts payable. This should be done per account code, not necessarily per contractor/supplier. The Country Manager should have available details of the invoiced amounts so that he can justify the accruals in detail if required.

Once the accruals have been entered into the general ledger and the month's end balance obtained, they should immediately be reversed out again (by Accounts) in order to repeat the exercise again at the end of the following month. An alternative approach could be to leave the accruals in the books and then enter only an adjustment at the end of the month. If this is done there will be no correlation between the general ledger entries and the Country Manager running totals, and checking discrepancies will be impossible.

Weekly reports

It is essential to know not only the actual amount spent to date, but the amount which has already been committed it is estimated will be spent i.e. what will be the total cost charged against the budget if the decision is made (on the reporting day) to stop the operation, and what will the total cost be if the programme is followed as planned.

6. Petty cash

If any part of the operation takes place on land there will be a requirement for the field staff to handle petty cash (compensating landowners, paying day-labourers, public relations gifts to local institutions, etc). Approval should be made at the relevant level (as defined in the Manual of Authorities).

There should be a very strict control from the first day of how petty cash is handled, and although the amounts may be small compared with drilling costs the control required is the same.

A safe should be provided from the start and the key should be held only by the senior Company Site Representative. He should ensure that all the usual formalities are observed, like obtaining receipts, keeping a simple accounts book, etc. If the payee cannot read or write, payments should be made in the presence of a village headman etc. who can sign to say that he witnessed the payment. If this is impractical or inappropriate, for example in the case of payment for goods purchased at a small shop, the payee should write a short "affirmation" that he made the payment, which can go into the files.