Oil and natural gas touch our lives in countless ways every day.The Oil and Gas industry is usually divided into three major sectors:
- Midstream &
Sometimes Distribution & Marketing are associated together and effectively this is called as Downstream.Companies operating in the industry may be regarded as fully integrated, (i.e. have both upstream and downstream interests), or may concentrate on a particular sector, such as exploration and production, commonly known as an E&P company, or just on refining and marketing (a R&M company).
Scientific exploration for oil, in the modern sense, began in 1912 when geologists were first involved in the discovery of the Cushing Field in Oklahoma, USA.
First successful oil Well was drilled in the year 1859 with the sole purpose of finding oil by”Colonel” Edwin Drake in the middle of quiet farm country in northwestern Pennsylvania.
Perspective to look at the oil & gas industry:
- Geopolitical & Internal Policy
- Health, Safety & Environment
Let’s see What Upstream Industry does
- With Geological and Engineering Data how much oil can be
- produced from a given reservoir?
- In what quantity and for how long?
- Maximizing the production of a given reservoir, putting in place the Sub Surface and surface infrastructure to produce a reservoir
Replacement of Reserves
- An oil companies size is determined by its reserves and its ability to replace reserves
Upstream Industry Value Chain
- The primary objective is to provide upstream oil and gas operators with operating performance insights to maximize value from their portfolio of assets.
- This can be achieved through better integration of processes and data across the upstream value chain.
- With high performance technology as the foundation, operators can materially improve operational and strategic decision-making.
Now let’s focus on type of cost incurred in the Upstream Industry
- Acquisition Cost – Costs incurred in order to acquire legal title to the working interest in the mineral property. These costs are essentially lease bonuses, or if an existing working interest is purchased, the lease production costs etc.
- Exploration Cost – Costs incurred to resolve doubt as to whether or not proved reserves actually exist on the property. These costs include geological and geophysical costs as well as exploratory drilling costs.
- Development Cost – Costs incurred after proven reserves are determined to exist on the property, up to the point where property is capable of producing reserves. These costs include completing the discovery well (casting, cementing or perforating) and the cost of development wells plus all surface equipment that is installed.
- Production Cost – Costs incurred once the property is capable of producing until the oil or gas leaves the lease. These costs are primarily lifting costs, treatment costs, and the two primary taxes, severance taxes and crude oil windfall profit tax.
Associated cost object used in the Upstream Industry SAP Solution
In a typical upstream implementation projects we can treat the Cost objects in the below fashion:
- Cost Center – Based on the Production activities/departments i.e. Well, Facility, Platform or Corporate Department.
- Joint Venture Master Data – Can be represented by a well or multiple wells – Technically not a cost object but only can be associated to a real cost object.
- Network: Classification of Project Costs i.e. Particular area in the Oil field.
- Activity under Network – Further classification under Network
- Projects/WBS – Well level or higher than Well.
- Work Order – Required for Maintenance/Workover
- Profit Center – Division/State/Oil field/Region etc.
Talking about Upstream Implementation prerequisites, following points would be good indicator
- Is a single integrated platform for the end-to-end value chain
- Supports standardization of processes
- Is a single instance globally to allow for cross asset roll-up and reporting
- Is a support for all asset types from non-operated to complex regulatory environment
- Replaces several Legacy Applications
Each implementation project irrespective of industry has its own share of challenges & risks and Upstream Implementation also is not an exception.
Upstream Implementation Challenges
- Understanding the Oil and Gas Domain and mapping it to SAP.
- Integration aspects supporting the third party interfaces like Tieto for Hydro Carbon Accounting and JIB Link interfaces in JVA to name few.
- Huge Conversions for all upstream modules like JVA, PRA and PSA modules in terms of master data and legacy transactional data.
- Improving and compliance with SAP Asset retirement Obligation (ARO) Management.
- Variation in Processes with respect to localization.
Upstream Implementation Risks
Upstream Implementation risks are divided into two parts.
- Unavailability of skilled/experienced resources
- Time overrun due to complexity/data volume
SAP Solutions Perspective:
- Multiplicity of reporting requirement i.e. Statutory vs. Local vs. US GAAP.
- Known Gaps
- Key Naming Conventions during design
In case you want to know about Downstream, you can check my blog through the link : Downstream Industry Process Overview & SAP Solutions