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What We Can Learn from Oil & Gas Companies About Preserving Margins

Thursday, August 30, 2018

5 minute read

What We Can Learn from Oil & Gas Companies About Preserving Margins

The Oil & Gas Industry is currently experiencing the fourth year of the crude oil downturn – so what are O&G companies doing about it?

In one word – automation. O&G companies are automating purchase to pay to do more with the resources they have and preserve margins in a volatile market.

The Digital Revolution is Here

According to the Deloitte 2018 Outlook on Oil & Gas, the digital revolution is here and “it could mean the difference between thriving, surviving, or just not making it.”1 The report states:

“The proliferation of increasingly lower-cost digital technology is already unleashing innovative ideas across the oil and gas value chain. From how we develop a field, procure goods and services, and move product to all the HR and back-office services to support the core businesses, digital technologies could change everything, resulting in radical efficiency gains and improvements of both top and bottom lines. This does not mean everyone will win. The digital age is seemingly moving faster than our previous industrial revolution did and could naturally create winners and losers. However, companies that are willing to innovate and invest can unlock tremendous value and may remain financially strong regardless of what happens to global supply and demand trends. So, the digital cavalry is coming, but it likely won’t rescue everyone— possibly only those who are brave enough to embrace it.1

Do More with Less

The oil and gas industry has been going through a lot of turmoil over the last few years, with falling crude oil prices. Several companies have gone into bankruptcy or been acquired by larger organizations. Cost containment remains a top priority for organizations in this industry.

O&G companies are looking at ways they can optimize what they’re already doing to generate cost savings, significantly increase efficiency, and stay lean while times are tough. While many companies have already adopted or are looking at technologies on the production side, the back-office operations around procure-to-pay are highly manual, labor intensive, and costly. There are huge opportunities to increase efficiencies and reduce costs by automating these paper-based processes.

O&G companies embracing the digital revolution are looking at automating the following functions:

Procurement:
Now, more than ever, O&G companies need to reduce their spending on goods and services. e-Procurement solutions give companies the tools to reign in maverick spend and get a deeper level of visibility and control over organizational spending. By automating the buying process through an easy-to-use e-procurement tool with advanced mobile capabilities for users who are less tech-savvy and spend a lot of time in the field, these companies are ensuring they are increasing compliance to contracts and purchasing policies. Advanced workflows and features like guided buying are making compliance the easiest thing for these users – so they can get 100% user adoption and the company can reap savings from the negotiated contracts, volume discounts, and using what they already have in inventory. And the speed of electronic ordering helps ensure that O&G companies don’t suffer critical downtimes when necessary parts and supplies are requested for off-shore operations.

Asset and inventory management:
Properly managing assets and inventory to maximize value from existing equipment and operations is critical for O&G companies as well. There are too many assets, too many wells, and too many spreadsheets. When you add condition code tracking and valuation into the mix, things get too complicated to track in a manual paper-based process. Automation can reduce the manual effort involved in these processes and provide greater visibility into assets and inventory. This means users are not procuring goods that are already in inventory and assets are being properly maintained and tracked to extend the useful life of equipment.

Materials transfer:
Most of the equipment and components used on an oil lease fall under the general heading of materials, including spare parts, pipes in storage, and chemicals that are stored at the well sites. High value items are transferred from well to well in the production process and all that stuff must be recorded and tracked – which is critical to ensuring financial stability. There is a lot of recordkeeping and paperwork that is involved whenever the materials are moved or transferred – making the materials transfer process tedious, time-consuming, and costly due to the lack of efficiency.

Automating the materials transfer process saves significant time and cost, provides critical visibility over important pieces of equipment, reduces errors, and enables the company to record the condition of the assets as they are moved for proper depreciation later.

Key Benefits:

  • Automate accounting entries for material movements

  • Track the location and condition of high-value assets

  • Eliminate costly manual processes and reduce errors

  • Create complete audit trails and a transaction history for auditing purposes

This means less time spent on spreadsheets and more time spent on more valuable activities that keep production high and costs low.

Receiving and invoice reconciliation:
Receiving in a de-centralized, manual environment, like with O&G companies, poses challenges like lost goods and invoices. When goods and services are being received at multiple different locations or wells from many different types of suppliers ranging from the large and sophisticated oilfield suppliers to the mom and pop water haulers, things get complicated quickly. Managing the receiving process and reconciling it with the invoice can be very time consuming when dealing in paper.

By automating the AP process, companies can:

  • Streamline the receiving process, so there is visibility across the organization

  • Automatically match the invoice, PO, and receiving documents to assure a three-way match

  • Detect discrepancies that exceed pre-configured thresholds automatically

  • Route notifications to predetermined lists of recipients for resolution.

Ready to embrace the digital revolution?

According to Deloitte, "Companies that are willing to innovate and invest can unlock tremendous value and may remain financially strong regardless of what happens to global supply and demand trends."

To learn more about how Basware can help oil and gas companies automate their procure-to-pay processes – download the O&G factsheet and read our WeProcurement eBook that includes a case study from O&G company, DCOR, LLC.

1 https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-oil-and-gas-outlook-2018.pdf