Research On Budget Management Of CH International Oil And Gas Cooperation Project Under Production Sharing Contract

This research mainly explores on improvement initiatives for budget management for CH international oil and gas cooperation project under production sharing contract(PSC).Post the CH cooperation project phase I production operatorship handover from foreign company SH to Chinese company PC in 2016,it’s found that CH project’s production operation budget implementation accuracy and efficiency was very low in the past three years from 2018 until2020 after two years transition periods.CH project production operation annual cost utilization rate against approved budget was only 82%,76% and 79% respectively in 2018 till 2020.Cost recovery was only 78%,67% and 69% against approved budget,and cash call utilization rate was only 81%,74% and 66% against approved budget.To deliver CH project’s high quality development objective,it’s intended to explore the current operational issues and to develop solutions for the budget management improvement.To solve the low accuracy and low efficiency on budget preparation and management issues,drove CH project finance team to lead numerous brainstorm meetings with relevant key business representatives to address current operational issues.Used fishbone diagram to explore the root cause,and applied theories of principal-agent,motivation,business process re-engineering as well as lean management to optimize budget management.Simplified and standardized the budget management approach,re-designed the roles and responsibilities across key business and updated the orgnisation structure accordingly.Set up the goals for budget management,cost management and cost recovery,developed the corresponding monitoring mechanism,and eliminated non-value adding process for cash call procedure.To meet the objective of the management optimization,designed regular performance management and appraisal method,and set performance indicator in the CH project’s performance scorecard for budget management efficiency,cost management and cost recovery,as well as cash call efficiency.Set-up the relevant mechanism to enable the management optimization implementation effectiveness and assessed the implementation results.Based on the result,it’s ascertained that the management optimization was effective,and has improved the CH project production operation budget accuracy and implementation,enhanced cost management and cost recovery timeliness,strengthened cash call efficiency and maximized cash usage,enabled CH project’s economics and cash flow for both parties in the project.Post the solutions in this paper implemented in CH project production operation,2021 annual budget accuracy and implementation efficiency has improved significantly compared with2018 to 2020.2021 budget has reduced 12% by U$12mln compared with 2020,2021 annual cost has achieved 96% of annual approved budget,cost recovery achieved 90% against approved budget,cash call arrived 90% of approved budget,funding efficiency has improved significantly,monthly bank balance has constantly managed within given threshold while sufficient to support daily operational requirements.The successful implementation of the budget management optimization can be further extended to other cooperation projects under production sharing contract model in both SH and PC group companies,to achieve large scale benefits from optimization on budget management,cost management and cost recovery as well as cash call management efficiency.Furthermore,the research result can be used as practical reference on budget management optimization for other international oil and gas cooperation projects under production sharing contract model.