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On-site Touring of Pioneer Project in US

Date:2013-09-02 Source:Sinochem E&P

By Wu Zenggui, Lin Ya, Liu Yuejun 

In February, Sinochem Petroleum Exploration & Production Co., Ltd. purchased 40% of Pioneer Natural Resources Company’s stakes of unconventional shale oil in Wolfcamp Shale Zone, and closed the transaction at the end of May. At the end of June, in order to deepen our direct understanding of the purchased assets, technical staff from Sinochem Petroleum Exploration & Production Co., Ltd. stepped onto the land of Midland Basin, the place where the purchased assets was located at, to investigate on site and carry out related exchanges for one week. This fruitful trip rewarded us with many valuable insights.

Covering a land of 159 square kilometers, Midland City is a home to 0.1 million population. Once, it was an agricultural center renowned as “Queen City in Prairie” at the beginning of 20th century. Later, it gained a new nickname of “The Tall City” as many high-rise buildings mushroomed in the booming city along with a great influx of investors attracted by its affluent oil resources. George W. Bush, the 43rd president of the United States, spent his childhood in the city.

In the afternoon of June 19, we took off from Dallas-Fort Worth International Airport and flied over Midland City in the west of Texas State about one hour later. Looking downwards, we were greeted by boundless plain sparsely dotted with unnamed bushes. The newly-built well sites and closely-woven roads as part of oil and gas exploitation efforts were striking eye-catchers among the vast plain devoid of landmarks. These distinctive industrial marks would, we believed, become more frequently seen on this promising land along with our persistent efforts to tap shale oil in Wolfcamp Zone.

Financial training

In order to help us know better about the financial bookkeeping system of assets, Pioneer arranged a three-day financial training program designed specially for all visiting financial and technical personnel from Sinochem Group, with contents covering revenue recognition and distribution, cost accumulation and distribution, and joint audit. Head of Financial Department from Pioneer Ms. At the very beginning, we were curious to know why such a huge financial team was necessary for Pioneer. Our doubt was dispelled after the three-day training session. Financial staff in oil field are required to collect output test and inventory data of each well and input them into database on a daily basis. At the end of each month, they should assign the sales volume collected from sales terminal to every well and take it as the calculation basis for income distribution. Since each well falls into different oil blocks, which belong to different land owners, financial staff need to firstly calculate the royalty (namely revenue distributed for land owners) of each well before distribution. All too often, after the demise of old owner, his/her right to the wells is divided in proportion to several inheritors, who might again transfer their respective wells to other owners or pass on them to their descendents. As several owners share one plot in this case, operators are obliged to calculate royalty for each owner. Thus financial staff are liable to calculate loyalties for all concerned owners of each well with the oil products divided into three categories. The workload is unbelievably heavy.

Though computerized accounting system can make such onerous task less daunting, manual input, calculation and control are still necessary to accomplish such tasks. The rich experience and carefulness of financial staff are indispensible for such tasks too. The complaint phones will pour in if some calculation errors occur, so the financial team is always at high alert of any possible error. Such a complicated royalty fee calculation system is one of the striking features of US energy sector. We started to comprehend the reasons behind such a huge financial team in Pioneer and why royalty calculation turned out to be the biggest financial challenge for any operator who wants to set up a company in oil field in US.

Working site

It took us about two hours’ drive from the downtown of Midland to the working site of Pioneer.

Looking outside from the car window, we saw the plain stretching far away. Bushes a little higher than car body flashed away along with several reclaimed farmlands and lush pastures where several cattle were grazing on tender grass and occasionally glanced with wonder at the fleeting cars and visitors from outside world.