Oil and gas companies operate in dynamic and complex environments where they face constant challenges, especially in terms of fluctuating supply and demand.
Within the oil and gas value chain, upstream oil and gas companies are operating in challenging times. They are trying to maintain optimal production levels while increasing recoverable reserves and reducing unplanned well down-time.
They are implementing processes to improve their use of technology to proactively detect anomalies, manage remote well operations, organise logistics and improve enhanced recovery from reservoirs they acquire and develop. Additionally, market price volatility demands accurate and timely visibility into portfolio production yield.
Managing CAPEX and OPEX spend is critical for making decisions about portfolio risk, investment, divestment and development. All of these elements impact operations and can easily determine the success of a field, not to mention success for a company.
Volatility in oil prices and new oil field discoveries are some of the demand drivers in the industry. Quicker delivery times, greater use of sub-contractors and, above all, cost competitiveness are some of the challenges faced by suppliers to the industry.
Quick adaptation to change, entire project lifecycle support have become the “must have requirements” of suppliers today. While every company is different, some of the most common oil and gas ERP requirements include, but are not limited to:
- Cost control and tracking
- Equipment management
- Supply chain and procurement
- Project management
- Document management
- Financial accounting for oil and gas (including JV accounting)
- Human resources and talent management
- Multilingual, multi-currency for global customers and partners
- Standard financial management, cash management, and accounts receivable management.
- Investment tracking
With the ever-fluctuating global demand for energy, growing calls for alternative energy sources and rising production and exploration costs, oil and gas companies that wish to remain competitive have to rebuild their older infrastructure and incorporate new technologies to improve production.
By using robust ERP solutions, the companies are able to see current projects to completion and still remain competitive. Epicor understands the pain points and challenges of oil and gas ERP implementations and the definitive need for a strong and robust ERP solution for operators.
When processes are standardised, data is consistent, as opposed to having many different systems of record across the company.
In an industry with so many units dispersed geographically, an enormous number of wells, and complex supply chain demands standardization plays an important role, and ERP provides it.
The ultimate payoff from standardization is not just cost savings from achieving economies of scale; it is also the competitive advantage and flexibility that comes by allowing rapid movement into new markets and workload adjustments among offices.
With regard to assets, a lack of current and accurate information may cause some companies to delay the replacement of under-performing assets, or upgrade entirely functional assets too soon. A recent global survey revealed that many financial decision makers are dealing with a “data deficit” that threatens decision making and fiscal management and financial operations.
The survey found that over 46% of financial executives rely on “gut-feel” and instinct to make business decisions in lieu of fast access to accurate internal data. This inability to access the right financial information is having a direct impact on business performance. Of those polled, 45% say poor data hampers timely decision making, and inaccurate information is the main cause of organizational mistakes.
In contrast, a robust ERP system will provide managers with pertinent timely information about external events and internal resources, thus improving the quality of managers’ decisions.
The oil and gas operating environment has some unique facets though, and brings in multiple stakeholders such as JV partners, stakeholders from the country where the exploration and production activities are taking place, investors and shareholders amongst others.
The Production Sharing Contract (PSC) leads to complexities within the accounting environment. The contract with the government means that the operator is able to claim its costs of developing the asset. This obviously means close scrutiny of the JV accounts and processes by the government. The issue is that not all costs are claimable and that costs need to be transparent and there must be readily accessible audit trails available.
The financial system will therefore need to feature a reliable method of disclosing the claimable and non-claimable costs and reporting in the manner prescribed by the government.
The consequence for oil and gas businesses is that the accounting and operating environment is complex. A solution that addresses these challenges in a simple and effective way means less work around, spreadsheet management, paper trails and less risk. The joint venture environment leads to complexities in consolidation, and inter venture accounting in particular. A well thought out ERP system implementation is needed especially when there is a need to add an international operating environment and project accounting into the mix.
Robust ERP solutions for oil and gas companies need to provide a powerful yet easy way to manage project portfolios. The solution should enable companies to manage schedules, costs and resources across all projects, ensuring projects are delivered within budget and on time. Moreover, they should provide accurate project execution and appropriate visibility at all levels, enhancing collaboration and managements of tasks across departments.
By implementing modern, next-generation ERP technology, oil and gas companies can ensure they choose their projects wisely. Apart from this, ERP can also help companies mitigate risks associated with various projects, improve employee productivity and reduce operational costs. Oil and gas companies looking to remain competitive in the coming years will have no option but to integrate robust ERP solutions with their operations.
Another area where a robust ERP solution can be effective is risk analysis. Organisations can use their ERP system to understand and plan for project risks in advance, using costs and schedule analysis capabilities. Companies can get comprehensive information on the success levels of a project and quickly come up with effective risk response and contingency plans. For example, ERP can support project governance and financial planning by analysing the cost and schedule impacts of mitigation scenarios, model risks and calculate most-likely completion times.
Going forward, even though some of the ERP value chain best practices have trickled through to the oil and gas industry, there is always scope for further improvement. Better project portfolio planning, strong risk mitigation, improved demand planning and optimised inventory management will help oil and gas companies maintain their competitive edge and earn far better return on investment on their oil exploration and production.
Epicor believes that compliance to best practices in oil and gas ERP design blue print, coupled with the implementation of a strong software solution, is the way forward for oil and gas companies to reduce costs and mitigate risks and to focus on production and exploration in the most optimised way. It will be really interesting to see how upstream oil and gas companies can effectively manage the deployment of best-in class ERP, coupled with the adoption of best practices.
