SAP for OIL FIELD SERVICES in 2017
SAP for OIL FIELD SERVICES in 2017
The Oil Field Services (OFS) industry is a capital intensive industry. From a financial performance perspective there are two metrics that are key for an OFS company to monitor, i.e.:
(1) Job & contract profitability, and
(2) Resource & equipment utilization.
For analysis purposes “roll-up and drill-down” by business unit, type of service, region, customer, as well as by individual contracts (long term) and jobs (short term) are important in supporting decision making.
SAP is an ERP platform that is well suited to the needs of the OFS industry. Software and tools such as SAPUI5 Mobile Applications, SAP Fiori and SAP Front-end screens utilizing S/4Hana On-premise or Cloud Edition enable oilfield service companies to leverage real-time integration for managing contracts, equipment tracking, field service tickets, and billing. Resulting increases in efficiency and reporting lead to increased profitability, higher customer satisfaction and greater market share.
Job and Contract Profitability
Profitability and growth potential are important metrics considered by investors when developing their expectations of the financial performance of a company. On the operating side of profitable OFS companies there is generally a high level of skill in terms of handling equipment, products, and service. However those that are successfully driving the operating side of the business aren’t always as skilled in financial management areas such as; accessing the lowest-cost capital, job and field margins, cost control, timely collections, and modern methods of employee management and engagement. (Alberta) These are key factors in achieving maximum profitability.
OFS firms are often the first to be impacted by increases or decreases in oil related spending as they are highly dependent on the price and demand for petroleum. The major drop of oil prices and the resulting reduction in activity over the past two years negatively affected profit margins for Exploration and Production as well as OFS companies. (Investopedia)
However, Deloitte’s June 2016 analysis “Oilfield Services Market Conditions and Trends 2016”, discusses a rise in expenses on well maintenance and workover that was due to the desire to increase oil recovery at existing oil deposits. The report stated that in Q1 2016 well maintenance costs had increased by 10% from the 2015 costs which had previously shown a 14% decrease from 2014 costs. The report anticipated that by year end the 2016 well maintenance costs would rise back to the level of 2014. Additionally, it was forecasted that the investment in workover would rise by 20% over the 2015 level which had previously seen a reduction of 6% from 2014.
For 2017 the spending trend is expected to continue. Bloomberg Intelligence (BI) analysts Andrew Cosgrove and William Foiles presented a briefing on December 21, 2016 on the outlook for U.S. oil services and drilling. The bottom line: U.S. shale developers will lead a rebound in oilfield service activity in 2017. (Oilprice.com)
Increasing spending activity in the OFS companies provide opportunities to take advantage of the latest SAP trends, particularly the recently released S/4HANA 1610. Being labeled the ‘Next Generation in ERP”, SAP S/4HANA is a database built on SAP’s advanced in-memory platform with simplified data structures that reduce reconciliation and improve reporting and the Fiori 2.0 User Experience which is a role-based, mobile-enabled and all-encompassing interface.
A key business advantage is the high data entry speed and tremendous improvements in the flexibility of reporting hierarchies, which can be changed without changes to the database. For the OFS company, this real-time, flexible reporting supports analysis of jobs and contracts, decision making, and profitability across business units, type of service, region, customer, as well as by individual contracts and jobs.
Equipment Tracking and Utilization
Equipment mobilization in the Oil Field Services (OFS) industry involves all activities related to transporting: equipment, equipment components, tools, spare parts, and supplies needed for a particular job, i.e.: mobilization planning, transportation, and reporting and tracking.
Due to the nature of OFS jobs, and the environment in which they have to be executed (remote areas, minimal infrastructure & connectivity), comprehensive tracking of all labor, equipment, tools and materials used on a job is both challenging and important to ensure proper billing to the customer. As an example: it is not uncommon for materials or tools on a job to remain “un-accounted” for.
The Oil & Gas Financial Journal, in its 1/18/17 article “Energy Outlook 2017”, predicts that expense management among operators will continue to place stress upon oilfield services companies and equipment providers. Rate compression and shorter contract duration were a way of life for the last two years as producers sought to renegotiate or enter new contracts at reduced rates. In addition to price concessions, service intensity increased as producers remained focused on optimizing completion techniques and improving well efficiency gains through longer laterals, increased proppant usage and higher frac density. Service companies will be quick to increase prices to return to profitability, potentially at the expense of maintaining market share. Service companies remain poised to ramp up and expand activity.
Given the expectation of growth in activity and continued focus on optimization and efficiency gains, the OFS industry is well positioned to utilize the benefits of the SAP tools via S/4HANA or SAP Business Suite ECC. Typical SAP solution features include: equipment mobilization planning, transportation and tracking, and mobilization reporting. Equipment Mobilization and Tracking can be achieved by leveraging standard available SAP ECC functionality in SD, MM, PM, PS, AA, and integration with other processes e.g.:
- Maintenance: Preventive maintenance plans, equipment upgrades etc.
- Finance: Financial implications of equipment moves across legal entities.
S/4HANA improves on the solution with flexible real-time reporting and the Fiori 2.0 User Experience which brings the process to the user, mobile-based level.
Remote / Mobile Capability
Ease-of-use is vitally important for OFS equipment management, especially when it comes to capturing field data from any location or device, with or without the internet. Today’s environment calls for systems that work seamlessly between on-premise or cloud backbones, and mobile phones or tablets. OFS remote data and reporting challenges may be attributed to:
- Real-time tracking of equipment, tools, and supplies needed for most jobs,
- Entering costing and timesheet data off-site while on the job
- Many, and often remote, locations typically served by the OFS company
- Inquiries regarding contracted services and agreements
- Management of complex transports.
SAP offers a wide range of tools to meet the needs of remote users via mobile or desktop. SAPUI5, SAP Fiori, HANA Cloud Portal and S/4HANA provide enhanced user interfaces with which one can record the equipment, labor and materials used on a job, launch purchase requisitions, verify contracted services, surcharges & discounts, and perform other important tasks directly from the field. Even when there is limited system connectivity, field crews can accurately and efficiently capture and enter information.
The new Fiori UI is cleaner, easier to understand and use, and implementation of completely new processes are possible because of the speed of SAP HANA. The recently released, tile-based SAP Fiori 2.0 comes with Viewport, which includes a customizable ‘Me Area’ and a ‘Notification Area’ which allows faster navigation to relevant apps, objects and actions. Field operators can access all applications via the SAP Fiori Launchpad on their mobile device.
These tools provide the OFS operators with ease of access to information and apps, transparency on items needing attention and timely notifications, support in deciding what needs to be done next, and the ability to perform quick and informed actions.
Govert/Brent: Great article! Very detailed and relevant to current market conditions. Please post it on social media sites (liked LinkedIn) if you haven’t already. The one point worth adding is the use of other complimentary SAP solutions in an integrated fashion like Ariba and Fieldglass for contracting/procurement/Service Entry Sheets/payment, and for contingent labor management, respectively.