By Jean-Pierre Foehn, CEO – Amalto Technologies
In an interview, published in preparation for the 8th Annual Summit of Operational Excellence in Oil and Gas, Rustom Mody, V.P. and Chief Engineer of Enterprise Technology with Baker Hughes, a division of GE, states, “During a downturn, companies have to differentiate themselves so they’re always willing to try new technologies. At the cost of $50 a barrel, we need to come up with new technology that reduces the cost of doing business. Digitization creates efficiency and efficiency is what's needed to reduce cost.”
Today, companies that strive to be innovators and leaders in cost reduction must, truthfully, be problem solvers. One particular problem we’ve seen in the oil and gas industry is how to best streamline and optimize the millions of transactions completed each year between oil & gas (and associated water) producers and their water hauling service providers.
This process, and the explanation of the problem, begins when a truck is sent to the field and captures the volume of water transferred from the tank to the truck, creating the related invoice and finally enabling the payment. It may sound somewhat simplistic, but it is quite a daunting endeavor – similar to trying to capture and make sense of a million receipts that have been blown away in the middle of a hurricane. While this might be a slight exaggeration, the analogy is well-applied. There are 20 billion barrels of water produced onshore in the U.S. each year. This translates into a $30 billion industry.
Where the Problem Lies
The current paper based Invoice-to-Cash process is inefficient and full of errors. Truck dispatching is not optimized, there are disputes between the two involved parties on volume transferred, there is a lengthy process to approve field tickets (the service receipts) and the invoice and payment is regularly delayed. None of these things add revenue or efficiency to an organization. In fact, these things are a significant drain on an organization’s bottom line, many of whom don’t know where to start to solve the problem.
So, what’s the solution to this problem? Organizations should begin wrapping their minds around how to best use new an existing technology that enables and invites efficiency rather than putting the onus on people to “work smarter” and be “more efficient.” In other words, use more technology, not more people.
Implementing a Solution
Today’s technology solutions allow for:
- An end-to-end flow of data from the well to the bank, removing paper-based transactions and the inherent errors associated with them
- Integration of all systems of records via a single, cloud-based platform
- Immutability of the data recorded in a blockchain distributed ledger between water haulers and producers
- Automation of the steps that can be automated, such as the order through to payment process and the use of smart contracts
There are immediate benefits associated with incorporating technology and automation, including:
- Optimized dispatching of trucks to the field
- Elimination of disputes between water haulers and producers on the volume transferred
- Transitioning people to handle and focus on more value-added, strategic work rather than work that invites human error
- Financial optimization resulting in better cash flow forecasting for producers and reduction of DSO for the providers
- Improved compliance related to water disposal regulations
It is absolutely not out of the question for organizations to see a cost reduction of $25 to $50 per truck rotation when technology and automation have been optimized. This could easily result in hundreds of millions of dollars in cost savings throughout the industry.
Water hauling is clearly not the only domain where technology can deliver value. A solution integrating the physical supply chain to the financing supply chain would introduce greater efficiency. This would mean accelerated payment of the trucking companies by having banks participating in the secured and permission-based network. This could be accomplished via blockchain and smart contracts, which enable the automation of the various steps of the process while providing immutable data records, and would deliver massive operational and financial improvements. Imagine the implementation of this technology across domains where a service is triggered by alerts, such as water or production hauling, supply of chemicals or diesel to the well site in upstream, and LNG commercial distribution in downstream – just to name few examples from the oil and gas industry.
Now that the technology to digitize the water hauling Order-to-Cash process is available, the challenge – to return to Rustom’s quote – is to encourage adoption by both producers and water haulers willing to differentiate themselves in a challenging market where $50 a barrel is the norm. Clearly the technology is there to disrupt this process, provide a significant ROI, and transform a process that is decades old. Are users ready?