Procurement in upstream oil and gas has been anything but simple due to heavy reliance on third parties for delivery of complex services. These services consist of a large bundled fee to an oilfield services provider, for example, to cover numerous services and associated materials.
The boom in unconventional resource plays spurred automation of procurement processes to enable rapid development of thousands of wells. Left behind in the rush, however, were the capture of reliable data, process rigor and effective financial controls. And discrepancies with supplier invoices could seem like mere rounding errors in an era when oil prices topped $100/barrel. With cost control now an ongoing imperative, the good news is much stronger contract-compliance features that can be integrated with automated procurement tools and business-to-business networks. Today’s more comprehensive systems are fit for purpose for exploration and production operators, and the technology is affordable even for smaller players.
Evolving to better end-to-end systems
Basic tools and manual efforts have typically been used to review the accuracy of pricing and terms against those in commercial contracts. Enterprise resource planning (ERP) systems provided more robust, requisition-to-pay processes while capturing basic data on spend and applying financial controls.
As oil prices starting dropping in late 2014, the urgency for cost reduction grew. Small teams of spot-checkers were put to work to sample invoice data in the largest spend categories during vendor audits. While this effort has proved worthy—sometimes recovering hundreds of thousands of dollars in overpayments—new solutions allow for compliance to be built into end-to-end processes, with field tickets checked at a detailed level against price books.
The benefits of moving forward now
The advantages of optimized systems for procurement are essentially twofold: process efficiency combined with achievement of procurement-negotiated savings. For companies large or small, the savings can be considerable. Greater automation reduces manual activities and eases time-consuming invoicing lookbacks, thereby freeing up procurement to focus on strategic issues rather than being burdened with chasing and reconciling payments. Well-integrated solutions for contract management, price book maintenance, supplier portals and detailed invoice price-matching are already available. Investing in such solutions during the downturn makes financial sense, both to strengthen control over costs in challenging times, and also to prepare for scaling up for higher rig activity and transaction volumes.