Asset Retirement Obligations (ARO) may not mean much to people outside the finance department; but, for todays’ Oil & Gas companies, financial and environmental regulations put ever increasing pressure on providing accurate, compliant, and auditable financial exhibits as prescribed by regulatory pronouncements like ASC 410-20, IAS 37, and German HGB. For many years, Oil & Gas companies have been managing ARO through manual time consuming processes that are prone to error and leave poor audit and reporting trails that are disconnected from their financial system.
SAP Asset Retirement Obligation Management (SAP ARO) helps our customers manage this complicated and time consuming process by streamlining their efforts and increasing the accuracy of their financial ledgers. With this application, companies no longer have to keep track of hundreds of spread sheets and manually input data. Instead the entire ARO financial process can be completed natively within an SAP environment. SAP ARO allows users to manage the lifecycle of AROs through create, change, and terminate (in part or whole) processes within a single user interface in their SAP system.
The SAP ARO application focuses on two areas: Data Management and Accounting:
Automating Data Management
Users can flexibly create or change AROs by providing key parameters and the current cost estimate(s) related to the retirement of an asset. The application then automatically calculates the retirement obligation provisions based on built-in logic for the applicable accounting principles. The application can even provide for multiple accounting principles and perform the required calculations in parallel.
SAP ARO also allows for master data to be stored in the SAP system streamlining the effort required to create or change obligations and all of the data and information is saved for future reference making the data more accessible across the enterprise.
After the SAP ARO application calculates the correct obligation provision amount and interest accretion, the next step is the automated accounting process. The application is integrated directly with SAP ERP Financials, so a user can instantly post the relevant amounts to the General Ledger and Asset Accounting. Here again, if multiple accounting principles are being maintained, these posting are also integrated and immediately posted in parallel. Additionally, the periodic accretion expense entries are created and stored by the application and can be scheduled to automatically post as well (including any parallel accounting principle valuations).
The result is a dramatic increase to both time savings and the accuracy of ARO values over the manual processes that many companies undertake today.
Beyond time savings, SAP ARO creates a much clearer audit trail. In addition to providing change log reports, the application keeps all historical data and calculations for each obligation. This level of transparency makes auditing (both internal and external) much more streamlined.
Creating and storing the data in the SAP system, rather than across various spreadsheets, opens up new possibilities for enterprise reporting. In addition to proving regulatory compliance more easily, the improved reporting allows companies to gain a clearer picture of their current obligation value and forecasted costs.
“Integrated functionality with the general ledger and the ability to customize the calculation logic to fit our way of working made SAP ARO a truly viable solution. As a result, Devon Energy improved the efficiency and transparency with which we could provide meaningful decision-making information to the business while enabling fiscal compliance.”
Devon Energy Corporation
“The use of SAP ARO has greatly streamlined our annual valuation process. Hundreds of spreadsheet files and reams of paper have been replaced by a straightforward financial calculation tool that integrates seamlessly with our existing SAP FI-AA module.”
“SAP ARO is one of the most straight forward and quickest modules to implement within the FICO area. Both the ARO solution itself and its integration points to the GL and asset sub-ledger are easy to enhance and automate. This makes for a flexible solution that meets our customer’s requirements for proper ARO valuation and reporting.”
Ø Substantially reduced efforts through process automation
Ø Lower operating cost from increased user productivity
Ø Regulatory compliance through delivered accounting principle logic
Ø ‘Faith in reporting’ by providing transparency and business insight from one source of truth
Best Practices for Oil & Gas: SAP Solutions for the Energy Industry
September 16-19, 2014 Hilton Americas Houston, Texas