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SAP and Accenture; working together on production accounting

Thursday, May 15, 2014

SAP and Accenture have announced plans to work together providing systems for production (hydrocarbon) accounting

Enterprise software company SAP and management consultancy Accenture have announced plans to work together to provides solutions and services for production (hydrocarbon) accounting in a program called 'Upstream Production Operations by Accenture and SAP.'

The system will be used for managing and reporting oil and gas production data, covering the space between flow rates recorded at the well head, and financial reporting.

It will run on SAP's 'High Performance Analytic Appliance' (HANA) database, which runs in the memory of a computer, which allows much faster data crunching and therefore more usable in the operational context. Fast data crunching is very important in hydrocarbon accounting, because there is a lot of calculation involved, particularly if you have a hydrocarbon system with multiple wells, multiple fluid flows (oil, gas, condensate), some of the gas being used for gas lift, comingling of different streams, and multiple owners.

SAP has been producing software modules for production accounting upstream for a number of years, under the name 'Upstream Operations Management' or UOM.

Accenture approached SAP during 2013 to look at ways to develop the system jointly to do more for production accounting. 'We got together last year and looked at what UOM had got to,' says Johan Nell, managing director in the global natural resources team of Accenture, leading its upstream energy practice. 'We decided jointly to expand the functionality into a fully-fledged hydrocarbon solution.'

The first software release is due in summer 2014, with two further releases planned.

There are already two companies implementing the current version of the software, an unconventional oil and gas operator in Australia and a conventional oil and gas operator in Russia.

Accenture's role is bringing industry expertise, process expertise and user perspective to help SAP develop the tool. 'We are highlighting the customer experience of what it should be,' says Mr Nell.

'Accenture is making a significant financial commitment to getting this done, mainly through manpower we provide for development and go-to-market,' he says.

Accenture will provide oil and gas companies with training to use the upstream modules. It will also help implement the tools.

Accenture and SAP first worked together in 1996 on a system for downstream oil and gas called IS OIL, which covers downstream production accounting, marketing, transport and sales.

Accenture and SAP hope that oil and gas companies will prefer to use the system for their hydrocarbon accounting because it is more sophisticated than the system they already have.
Some companies still use complex Excel spreadsheets to manage production data.

'There's a need in the market to really deal with production management more effectively,' Mr Nell says. 'I think it is right that the software and services market responds with a well-integrated tool set.'

Also, since most oil and gas companies already use SAP for their main enterprise resource planning (ERP) system, they might prefer to use the same supplier for their hydrocarbon accounting.

If you already manage their operations costs for each well using SAP, it might be helpful to have the revenue from each well in the same software system, so you can see what margin they are making.

There are other hydrocarbon accounting software solutions on the market, but Mr Nell believes that this solution will have an edge on the competition because it offers a single integrated system to do everything you need, rather than leave the client jumping from one software package to another.

Moving from ERP to hydrocarbon accounting might be seen as a step from providing 'back office' software to 'front office' software, Mr Nell says.

However SAP has been involved in various other tasks which might be considered more 'front office', such as maintenance management, as well as trading and scheduling.

Margins rather than volumes

Managing and reporting production data in more detail is becoming much more critical as margins get finer.

Many oil companies are shifting their focus to looking at the profit margin each well is making (in terms of production revenues minus operations and maintenance costs), rather than looking at their entire production in aggregate. This is otherwise known as a 'margins approach' instead of a 'volumes approach', says Silke Lehmann, managing director of Accenture's global energy practice, leading Accenture's business process management (BPM) and Accenture Enterprise Solutions (AES) for Energy.

'When you look at how companies previously operated, there was a focus on maximising production,' she says. 'These times have passed, so we are in a situation where companies need to optimise production for margin contribution.'

'This means that companies need to better understand not only the production volumes, but be able to associate those production volumes with assets on a well by well level.'

'The buzzword is profit and loss at the well head,' she says.

As described above, if you already use SAP to manage your purchasing and maintenance activities, then you will have detailed information about the costs of running and maintaining each well in your SAP system. If you also have production data, you know exactly how much margin each well is making.

You can use this information to decide where to prioritise maintenance activities, and how much it is worth spending on each well before shutting it in.

Having a well by well financial understanding is particularly critical for unconventional oil and gas wells, where financial margins per well can be finer.

Another factor emphasising production data is that governments and their National Oil Companies are increasingly retaining ownership of oil and gas reserves, even though they are being produced by a commercial oil and gas company, rather than the oil companies both owning the reserves and producing.

This means that oil companies' role is effectively to convert reserves into produced oil. This means that accounting for everything that is produced becomes much more critical.

Software

The software is focussed on production and revenue accounting and reporting.

It covers all the processes between measuring flow at the well head, to making financial accounts and invoicing for the enterprise, and everything in between. This includes gathering data, production forecasting, production accounting and deferment management.

The software can also be used to make financial forecasts based on current production data.

The software does not have any reservoir management component, so it does not include a reservoir engineer's estimate about decline rates, or tools to optimise production - however it is possible a resource planning component might be added in future, Mr Nell says.

The solution includes tools to manage uncertainty from field data, correcting data and dealing with anomalies.

SAP also provides tools to deal with regulatory requirements for revenue accounting, with a special module for North America revenue accounting, which is more complex than most other places in the world.

The software should be easily customisable to provide automated government reporting in different countries of the world (which might be done by a SAP systems integrator in that country).



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