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March 27, 2015
Can technology help upstream energy companies hedge against low oil prices?
By: Valerie Jalufka

Prolonged low oil prices have recently prompted several upstream oil independent operators in the United States to focus on aggressive cost-saving initiatives. In addition to capital budget reductions, some organizations are resorting to cutting workforce, which, while providing short-term relief could also lead to long-term problems in talent retention as well as in the operators’ ability to re-mobilize resources when the price curve turns upward.

For organizations with rising SG&A costs, technology adoption can be a hedge against volatile commodity prices. It can help oil and gas companies not only address short-term cost optimization needs through streamlined processes and lower total cost of ownership, but also position themselves for long-term opportunities. For instance, next-generation technologies offer robust analytics to optimize operating expenses, improve production, and reduce deferment. Here’s an example.

In the back office, production and revenue accounting (PRA) is a collection of activities often heavily dependent on spreadsheet and manual manipulation. A robust technology solution that reduces or eliminates manual intervention will bring down errors, increase productivity, and allow resources more time to focus on analysis and operational improvements. Such a solution may even enable proper regulatory reporting and better royalty ownership management, and facilitate complying with government reporting requirements.

This is good news for many upstream companies facing shortage of staff handling complex accounting functions. Just a few months ago, upstream oil and gas companies were focused more on maximizing production throughput, and were paying premium to achieve those goals. With enhanced operational controls and efficiencies due to improved technologies, independent operators are better positioned to manage their operations cost-efficiently and capitalize on margins with better pricing into the future.

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