Day Rate Method
Overhead amount can be a daily flat rate that is specified in the joint operating agreement. For example, overhead amounts for capital drilling and completions for an oil well can be charged a specific flat rate for each day that the drilling rig is on the well, and a different flat rate for each day that the completions rig is in place.
The calculation depends on the default day rate, day rate, and effective dates of the operational statuses of the joint venture or business unit during the calculation month that is specified in the processing option. The operational statuses of the joint venture or business units can change multiple times in the calculation month. Therefore, all of the operational statuses in that month will be considered while calculating the overhead amount. The default day rate is applied to all the operational statuses of the joint venture or the business unit. If there are exceptions, the operational status can be specified as an exception operational status for that method. The day rate for this exception status must be specified for the exception operational status to be effective. If the joint venture or business unit operational status is specified in the exception operational status for that method, overhead is charged using the day rate specified in that method. If you do not want to use an operational status in overhead calculation, you must set up that operational status as an exception operational status with the day rate as zero.
Consider the following example:
Default Day Rate = 100 USD
Operational Status for a joint venture:
February 1, 2018 = Drilling (100)
February 15, 2018 = Producing (170)
The overhead calculation for January will be:
Total number of days in January x default day rate = 31x100 = 3100 USD.
For the exception operational statuses, the overhead for February will be calculated as follows:
From 2/1/18 to 2/14/18 is 2800 (200x14 days)
From 2/15/18 till 2/28/18 is 4200 (300x14 days)
Total overhead amount for February = 7000 (2800+4200)
