Budgeting Is An Indispensable Tool For Planning And Control In The Oil Industry (A Case Study Of Addex Petroleum)

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Budgeting Is An Indispensable Tool For Planning And Control In The Oil Industry (A Case Study Of Addex Petroleum)


Chapter One


1.1 Introduction to the Study

The long-term success of any business enterprise depend largely on its management managing. In fact, coordinating and controlling all efforts in an enterprises in order to achieve it stated objectives. Management functions of coordinating and controlling an enterprises facilitated by various procedures are of which is planning.

Omolehinwa (1991) stated that a budget can be view as the plan of dominant individuals in an organization expressed in monetary term, and subject to the constrains imposed by available resources may be utilized to achieve whatever the dominant individuals agrees to be the priorities of the organization.

For the purpose of the study, we shall defined budgeting as the formal approach of stating and communicating a firm’s control responsibilities of management in such a way as to maximize the benefit derivable from the use of it is scarce resources.


1.2 Purpose of the Study

The purpose of this study is to examine the budgetary system of Addax development Nigeria limited appraise the procedure and technique adopted in budget preparation and to determined the level of compliance of the company’s budget of the production sharing control (PSC) with the Nigerian Government.

SPECIFICALLY

  1. This study intends to establish to use of budgeting as a tool for planning and control in addex.
  2. To know the existence or otherwise of adequate budgetary control set up by management to identify the techniques and practices adopted in the budgeting process of Addex
  3. To identify the techniques and practices adopted in the budgeting process of Addex.
  4. To know the existence or otherwise of adequate control of Addex budget by NNPC.
  5. To identify obstacles encountered in the planning, budget preparation and control function in Addex.

1.3 Statement of the Problem

Task is the petroleum industry are divided into major categories up stream and downstream. Upstream involve the acquisition of mineral interest in properties. Exploration concluding prospect development and production of crude oil and gas)

Downstream involve transporting refining and marketing of oil, gas derivatives, the upstream sector of the petroleum industry is capital intensive and probability of not discovering of not discovering quantity is high
Major economic assets of an oil company are its oil and gas reserve as part of effort to reduce. Basic risk in oil and gas exploration, companies engage in arrangement such as joint venture farm out carried in interest in interest button hole and dry hole agreements, production sharing agreement and others.

The time differences between much exploration and the bringing of reserve into product often run to several years, particularly in off share location consequently, the risk of loss of capital is high. This risk is affected by the nature of the location availability of funds and government legislations

A principle type of ownership of economic interests encountered the industry as a result of the high capital out lay and high works involves is the production sharing contract (psc)

Currently, the Nigeria national petroleum company (NNPC) through various agreement one of which is the psc.
In a pcs arrangement the company operating the venture will produce the required funding to carry out exploration development and product are set a side to cover cost oil comortised capital cost and product)profit oil are the shared among operating companies and NNPC at the agreed ratia

Given this section the partner to the venture on weak programme of project and budgets for each preceding year.
It is the responsibility of the management of the operating companies for an effective system in place for an effective planning and control of the joint venture operations. This is seldom the case


1.4 Scope of the Study

The study is necessary focused on budgeting as a tools for planning and control, the study uses addex petroleum development (Nigeria) limited as a case study


1.5 Research Methodology

This states the type of data to be collected and the source what instrument to be used for data collection and data analysis? For data collection instrument include interview, questionnaire, textbook, consultation etc. while for data analysis we have descriptive or inessential statistic or botto.

The research work on the infact of electronic baking (embanking) on Nigeria bank with emphasis on first bank of Nigeria PLC

The research has made use of both primary and secondary source of data

The primary data employed include questionnaire and interview while secondary data include textbooks, internet, journals, current annual reports e.t.c

The population research is basically the staff and customer of the first bank of Nigeria plc. While both descriptive and inferential statistics has been employed to present and analyze of data collected


1.6 Research Question

  1. What are the different types of budgeting system within the oil and gas industry
  2. What are the type of budget prepared and what technique of budgeting adopted by addex?
  3. What process are in place for budget in addex?
  4. Are the procedure followed?
  5. Are there enough personnel involved in the budget planning function of the4 company ?
  6. Are the objective of budgeting realized?
  7. Are the procedure state in the production sharing contract in relation to annual work programme.
  8. Does NNPC follow up on the implementation of approved budgets and what are the budgetary control procedure adopted by NNPC?
  9. Are there adequate training session for personnel responsible for the budgeting function in the company?

1.7 Plan of the Study

The research work will be divided into five chapters for each chapter contains the following :chapter one will have the back ground of the study, statement of research problem, purpose of the study, scope and limitation of the study, research methodology, research question and plan of the study while

Chapter two will treat theoretical framework, planning function in an organization, how is the corporate plan developed, corporate plan budget, what is budget, approaches to budgeting, types of budget, budget preparation the budget manual, the budgeting , controlling function in an organization, and condition for successful budgeting

Chapter three will discuss brief history of the case study, restatement of research question, method of approach, methodology and limitation of methodology

While chapter four contain introduction data analysis and presentation to research questionnaire classification of costs, narrative of ad dare’s budgeting system

Finally chapter five and discuss the finding summary recommendation and conclusion, summary of suggestion for further study,

Bibliography/references

This will state the last of material textbooks, journal magazines consulted in the writing of the proposal and those that will be use to write main project.


Chapter Five


5.0 Summary of Finding Recommendation and Conclusions

The study focused on budgeting with emphasis on the budgeting processes of Addax.


5.1 Summary of Finding and Recommendations

Budgeting in the Nigeria oil industry can be defined as a formal approach of stating and communicating expectations of joint venture activities between contracting oil companies and the government. It affords both parties the vechicle for accomplishing the planning, coordination and control responsibilities of the joint venture operations.

Each year, the management of Addex petroleum development (Nigeria) Limited, presents its capital and operating expenditure budget as well as its production and revenue estimates to the government of Nigeria through the Nigeria national petroleum corporation (NNPC). These which are in the line with the company’s mission statement, strategies and objectives as highlighted in the five year planning cycle work programme are drawn using zero based method for new exploration and drilling activities while the incremental approach is used for maintain existing facilities.

The company has a planning department with well qualified professionals saddled with the responsibility of facilitating the yearly budgeting and budget revision exercises and ensuring effective preparation implementation and control of such budgets.

Final approval for each year’s budget is usually given at the budget presentation meeting between the management committee comprising representative of the company and NNPC. NNPC ensure that procedure stated in the production sharing contract with respect to preparation and approval of budgets are adhered to budget performance. Reports are also presented to NNPC for approval every quarter.

However, some lapses are observed in the budgetary system.

  1. While planning department coordinating the budgeting process, the accounts departments is saddled with the responsibility of preparing the financial statements. There is usually the problem of misalignment of cost where his expenses are coded and charged to accounts/cost centers different from those used in the budget. This problem can be reduced by getting the staff responsibilities for expenses coding in the accounts department to be more increased in the budgeting process.
  2. The budgeting systems which requires the preparation of two versions of the company’s budgets one with internal accounts codes and the other in NNP’S format, is very cumbersome and time consuming. A way round this problem is for the company to structure it account codes in the format required by NNPC.
  3. The preparation of monthly cost center variance analysis report was discontinued during the year due to the tight work schedule of the few employees in the planning department and the need to streamlining the process to make it more effective in its control function. Currently much effort is put into preparing the quarterly variance reports which would have been reduces were the CCVAR still being prepared plans are however on the way to resume the preparation of an effective variance analysis report.
  4. More time, cost centre heads are unquare of expenses charged to their cost centres hence the require control is missing. The obvious recommendation here is to request the officer in whose cost centre on expenses incurred to give the hutial approval to pay and charge all expense to his cost centre.

5.2 Conclusion

Budgeting is an indispensible tool for planning and control in the oil industry. It provides management of oil planning companies and NNPC with an effective vehicle for work programme planning and implementation.
Budgeting enhances the participation of every department of an organization in the drive towards achieving its stated long range plans, strategies and objectives.


Budgeting Is An Indispensable Tool For Planning And Control In The Oil Industry (A Case Study Of Addex Petroleum)


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Budgeting Is An Indispensable Tool For Planning And Control In The Oil Industry (A Case Study Of Addex Petroleum)


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