I s there any harm in switching an owner back and forth from a net owner to a JIB owner?

Repeatedly switching an owner from being a net owner to being a JIB owner or vice-versa can have some unexpected consequences in the system, simply due to how the program handles the two different situations.

To understand how problems can arise, it's necessary for an overview of how the system handles both net and JIB owners during processing. An owner who is marked as a JIB owner in a well is assumed to only have expenses from JIB closings attributed to them for that well. Since they're being billed out for expenses, the only previous balances should come from previous JIB invoices, created during the JIB run closing. This means that if an owner is also a non-JIB owner in other wells, any balances that they've accumulated with those wells will not be included as part of any previous balances retrieved by the system to include on JIB statements. The previous balances for JIB owners are stored as invoices, which is in a completely separate file from the suspense balances maintained by non-JIB (net) owners.

Since ownership in a well can be a mixture of net and JIB owners, it's possible that a single expense entry will be included as part of the processing for a revenue run closing, and a JIB run closing. This is where problems can arise by switching owners back and forth between net and JIB processing.

To better understand the kind of problems that can be created, an example is helpful. Consider a well where there are two working interest owners, one a 50% net owner, and one a 50% JIB owner. If a $100 expense is entered, and a revenue run closed, the system will see that it only needs to process 50% of that expense, since the other 50% will be processed later during a JIB closing. The system doesn't track how much of that $100 has been allocated to net owners, it just knows that a portion has been, and a portion remains for any JIB owners. If after the revenue run closing, the net working interest owner is switched to being a JIB owner, it breaks the link between what the system has billed out, and what it needs to bill out. If a JIB run is then closed, the system sees that the expense needs to be included for the JIB owners, and will process 100% of the expense, since that's the current percentage of JIB ownership in the well. This means that the original $100 expense has been billed out as $50 during the revenue run closing, and billed out as $100 during the JIB closing, for a total of $150.

A different and worse scenario (at least for the operator) is one where less than the full amount of the expense gets billed out due to an interest change. Consider the same example above, with two working interest owners in a well, one 50% net and one 50% JIB. If the same $100 expense is entered and the revenue run closed, $50 of that money will be charged to the net owner. Before the JIB run gets closed, the JIB owner has their ownership in the well reduced to 25%, and the JIB run is then closed. At the time of closing, the JIB ownership in the well is only 25%, so it only charges $25 to the JIB owner, meaning that only $75 of the original $100 got charged to the owners.

As mentioned above, the previous balances maintained by net owners are different from the previous balances maintained for JIB owners. This means that if an owner was a JIB owner and received a JIB invoice and never paid it, that outstanding balance will not show as a previous balance for net processing.

Because of the risks involved with switching owners between net processing and JIB processing, we don't recommend doing it. A one-time switch is acceptable, provided all balances for that owner have been paid prior to the change, but it still requires careful checking of the data to make sure all expenses have been appropriately charged. A simple rule of thumb to remember is that if you have a well with JIB owners in it, you'll need to do both a revenue run closing and a JIB run closing for it to process all the data, and there should be no changes to the division of interests between the closings. This ensures that the entire amount of all expenses will get billed out appropriately.

As always, you are encouraged to contact SherWare, Inc. technical support for any questions about the software. Since repeatedly changing an owner from net to JIB is not recommended, our ability to help fix any problems created by this situation is limited, as the software is being used in a way other than intended.

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