While digital technology has transformed businesses in many sectors, the oil and gas industry has embraced change only halfway, focusing heavily on modernizing oil and gas exploration work but leaving the back office mostly untouched. Technologies such as AI, digital twins and the Internet of Things have reduced waste and inefficiency in field operations, boosting productivity and bottom lines. But O&G companies have seen no urgency to continue this digital transformation with the back office and operations teams—until now. COVID-19 and this year’s market volatility changed everything.
Pump-jack
The stresses of an unstable market and the pandemic have made it painfully clear that the outdated financial processes the industry has used for decades are no longer viable. With offices shuttered and employees working remotely, businesses dependent on paper trails and in-person interactions find it impossible to perform even basic functions such as collecting and sharing information, writing checks, and processing invoices. The need to adapt, evolve and automate has never been more critical than it is right now, and operations and finance teams need support to make these changes.
Responding to these pressures, O&G companies have begun to modernize the back office. Teams are looking to streamline their processes, embrace digital technology, and rethink staffing and training to develop the new skills and expertise they need. To maintain profitability, oil and gas companies are also taking a hard look at their general and administrative (G&A) costs. Automation is the key to lowering G&A costs, providing the agility they need to respond quickly to market changes. Outsourcing is also a critical strategy, particularly within the finance function, as companies seek support from accounting firms with expertise in these areas.
Market volatility puts focus on profitability
It’s become evident that efficiency is essential when the bottom line is under so much stress. Companies need real-time access to accurate production data to enable rapid, strategic decisions that can protect profitability. At the same time, they need a way to share that information—quickly and with many different constituents. With oil prices in flux, top management, customers, lenders, and partners are demanding up-to-date reporting and financial data.
This on-demand request for information is straining teams. Data stuck in Excel and disparate systems takes time and effort to extricate. Accounting teams must pull facts and figures from numerous sources, consolidate everything into spreadsheets, manually enter some data, then review and massage it. That’s a time-consuming process.
And the job doesn’t end there. Making sense of the data to address everyone’s varying priorities is the next step. When they ask: “What do you have?” what they want to know is “What does this mean?” and ultimately, “What are you going to do?” To answer those questions in a meaningful way, accounting must go back to the drawing board to create reports on profitability and explain how to stay ahead of the market turmoil.
Automation drives efficiency and lowers G&A costs
Having critical information available in real-time or close to it is essential for operators to make informed decisions without delay. That’s why automation has become a top priority as O&G companies go digital. They need their accounting firms to support them in this effort to survive a depressed oil market.
Automation also helps in the field. When the collection of production data is automated, operators can monitor more wells with fewer people. That reduces operating expenses, which in turn, boosts margins.
And if the data transfer is frictionless, teams gain an advantage because they can collect insights versus focusing mainly on the data analysis process.
The transition is necessary as companies move away from legacy infrastructure and adopt cloud and mobile-first strategies. The advantages are clear: If documents are digitized, the information is accessible from anywhere. That’s essential when employees are working remotely. They can log into the company system on their home computers and access the data they need to do their jobs.
Move from data collection to data insights
Collecting data is only part of the challenge because raw information has little value unless you can learn something. That requires analysis, and businesses are relying on accounting partners and finance teams to provide it. And teams need insights -- information that lets executive teams answer the question “What should we do?”
By eliminating cumbersome, time-consuming manual tasks, automation frees accounting to do more valuable work—to provide actionable insights into information. Companies are counting on their finance staff to do that, but they can’t do it alone. O&G needs partners with finance and accounting expertise to support more efficient, effective, and faster decision-making.
As O&G companies strive to remain relevant and profitable, such measures are likely to become standard operating procedure. By embracing new technologies, these businesses will lower G&A costs and get ahead in the market. Accounting partners will help them weather this storm and position themselves for growth when the market recovers.
About the Author
Leon Busch is the chief operating officer of WolfePak Software which provides oil and gas accounting solutions, working with an entire network of accounting firms, consultants, and service companies. The company serves thousands of independent oil and gas companies across North America.
Mr. Busch joined WolfePak’s leadership team in February 2020, following the company’s acquisition of DocVue in late 2019. At DocVue, Leon was the COO, leading the sales, marketing, professional services, and client services teams for five years. Prior to DocVue, he was vice president and general manager of the Procure-to-Pay (P2P – OpenInvoice) product at Automatic Data Processing, Inc. (ADP) after its acquisition of DO2 Technologies in 2010. Leon is a member of the Association of Financial Professionals.