RE: SOLO $5 million facility29 Jun 2020 11:36
Cash Call Protocol – The Agreements
https://integrity-audit.com/cash-calls/
"For the purpose of this blog, let’s review just the terms of the Canadian energy industry’s most prevalent procedures, the 1990 CAPL Operating Procedure and the 1996 PASC Accounting Procedure that is typically attached to it. The clauses that are going to interest us are Clauses 503(b) and (c) (Advance of Costs) of CAPL 1990, and Clause 104 (Capital Advances) of PASC 1996."
"In a nutshell, here’s what our industry protocol is supposed to be for cash call invoicing, payment, and reimbursement:"
1) " The Operator is to provide a written estimate of capital expenditures that are expected to be paid for a project for one month, which is the basis of the cash call invoice to the Non-Operator (i.e. Joint Operator). The Operator must send this estimate to the Non-Operator no earlier than 30 days before the start of the month the cash call applies to".
"Let’s use capital expenditures for the month of May for an example. The Operator should submit May’s cash call estimate (and invoice) to the Non-Operators no earlier than April 1st (30 days before May 1st). Please note that the estimate is only to include the capital expenditures that are to be paid in the month of May and not just incurred or booked in May. An Operator may book an item in May but have payment terms of 60 days, in which case the expenditure should appear on the July cash call invoice."
2) "The Non-Operator must pay the Operator’s cash call invoice either 20 days after receipt of the invoice, or on the 15th of the month that the estimate relates, whichever is later.
In this case, let’s say the Operator submitted the cash call invoice right on April 1st. The Non-Operator has until the latter of April 20th (20 days) or May 15th to pay that invoice. If the Operator waits until April 30th to submit the invoice, then the Non-Operator has until the latter of May 15th and May 20th to pay it."
3) " The Operator spins off his JVB to the Non-Operator, and adjusts the amount owing for capital on the project in question (either manually or systematically) to reflect the advance.
Let’s say the May JVB spins off, which will likely be in early June some time. Hopefully the Operator has had time to book the advance and hopefully the Non-Operator has paid their invoice on time. If either of those conditions isn’t satisfied, we’re already going straight into a reconciliation effort, but let’s keep going anyway."
4) " If the month’s actual capital expenditures are over the amount of that month’s cash call when the JVBs spin off, then the Non-Operator is required to pay the shortfall within 30 days pursuant to Clause 103 of PASC 1996. If there is an excess, however, then the Operator must refund it on the JVB to which it pertains. If the Operator doesn’t refund it, then the Non-Operator gets to charge interest to the Operator according to Clause 106."
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