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Maximizing the Potential of Your Capital Management Plans – Part 3

Author: Duncan McDonald, Vice President – Products and Markets, 3esi-Enersight

Welcome back to the Capital Management blog series. In the first post, I walked you though the problems companies are facing today with capital management and in-year execution on their budgets. In part 2 I then discussed the 5 best practices I believe are critical for effective capital management.

In this final installment I will walk you through a short case study of a company (who will remain anonymous) that leveraged effective capital management to grow daily production by more than 7-fold, from ~7,000 boed to ~55,000 boed.

In 2007, a mid-size operator (we’ll call them UP Oil and Gas) came to us frustrated with their manual process, and constrained by Excel. Lack of collaboration, lag times, and little trust in their forecasts were just a few of the issues they had been experiencing. They were also concerned that their current process would not scale as they grew the company, and the problem would be greatly magnified and much more difficult to resolve over time.

In 2008, they decided to tackle this problem: They implemented a robust Capital Management solution supported by both software and new processes. The solution was focused on Capital Forecasting and Budgeting, Timing of Capital Spend, Resulting Production, and Activity Counts. UP Oil and Gas took a deliberate approach, implementing one part of the solution at a time.

Capital Forecasting and Budgeting

The first step was improving their capital forecasting and budgeting process. They integrated actual data from their financial accounting system, such that it could be imported on a monthly basis, and the data used to create the forecast was guaranteed to match what was actually in the accounting system.

They moved from quarterly forecasting to monthly forecasting, which provided a more accurate and timely portrayal of their operations, and allowed them to make proactive rather than reactive decisions. All of the results were fed into a larger corporate reporting solution. The CFO used those results to drive financial models, executive reports, and other company metrics.

AFE’s

Next, they implemented a new AFE creation and approval module that was directly tied to the budgeting solution. There were over 70 people involved in the AFE approval process, and log jams were frequent. Immediately after implementing the AFE solution, they saw a very significant reduction from the time the AFE was raised to when it was fully approved and uploaded into the accounting system. The time savings only grew as time went on and further efficiencies were realized.

Accruals

Having all of the data in one place, UP Oil and Gas decided to introduce an accruals solution that leveraged everything that was already in place thanks to this implementation. They built an integration to their Field Data Capture systems to pull in AFE Field estimates. Within one month, 6 people from other projects (who were on the periphery but needed to supply required data) were removed from the mix, as their data became readily available electronically, thereby streamlining the accrual process and recouping time for those 6 individuals to focus on their primary role.

Ready to Drill Process

UP Oil and Gas implemented an efficient “request for approval process” for abandonments, drilling, and more, all in the context of the budgeted line items. Through this they brought project teams together to ensure everything was in order for the execution of individual projects, gaining confidence that they were truly prepared while further tightening the forecasting process. .

As UP Oil and Gas demonstrated by their implementation, this evolution can be a phased approach to address the largest pain points first, and then layer on other processes as people gain trust and familiarity with solution. The new solution acts as an “Early Warning” system by providing accurate information sooner, so that you can take action if something goes wrong (as opposed to realizing you are overspent and missing your reported targets). There are enormous time and cost savings by having everyone in the same system, and project teams working together in a uniform manner.

3esi-Enerisght helps E&P companies gain efficiency, transparency, and trust in the data used for decision making by implementing integrated technology and processes for capital management.  Learn more here.  

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About the author:

3esi enersight Duncan McDonald 3esi-Enersight

Duncan McDonald is the Vice President of Planning Products at 3esi-Enersight.  For more than 15 years Duncan has been helping Upstream Oil and Gas companies take control of their AFE Workflows and Oil and Gas Activity Scheduling through the integration of technology and workflows to maximize efficiency.  He was the founder and President of COGS Solutions, a capital management software company who was acquired by 3esi-Enerisght in 2014.  When not helping upstream companies optimize their in year budget execution Duncan spends his time with his family, playing music or enjoying the great Canadian outdoors.