Oil and Gas Digital Transformation Enabled by ERP?
Updated on October 27, 2022 | By Priyanka Tomar
The oil and gas sector is prone to swings, whether as a result of fluctuating gas prices around the world or regular regulatory changes. It also constantly encounters unpredictably high and low waves of supply and demand. A bird’s eye perspective of all processes, activities and the real-time monitoring of resource availability is made possible by digital technologies, particularly ERP systems, in a sector like this. These data management as a service system also enable access to remote supply chain locations and visibility into critical processes.
From the oil well up to the gas station, the digital framework is a vital connection in the supply chain and worldwide operations. Therefore, there is a huge opportunity to increase efficiency and save spending through various digital efforts. However, isolated digital endeavors won’t yield significant advantages. Companies in the oil and gas industry need a strong core ERP system.
Given the size of the oil and gas sector, it is impossible to generalize about it as a whole under one broad heading. Evaluating the sub-sectors within is crucial for a better understanding of the oil and gas sector’s digital revolution.
Industry of Upstream Oil and Gas
The drilling of crude oil and transporting the crude oil to refineries are dealt with by upstream oil and gas. This sector has a high asset concentration and is characterized by operational difficulties in harsh, frequently hostile workplaces.
Companies operating in the upstream Oil & Gas sector need an ERP that can accommodate numerous scenarios of fixed asset management and procurement as well as the accounting treatment, which includes ensuring the accounts reflect the right book value based on a range of depreciation methodologies.
Second, upstream Oil and Gas firms lease assets, thus they ought to be able to adhere to the new lease accounting standards established by IFRS16 and its local versions. The upstream oil and gas business must undergo a digital revolution, which requires an ERP with the capability to accommodate these situations.
A lot of the sector’s activities are project-based, and these project activities adhere to a very clear “Authorization For Expenditure” (AFE) process where every expenditure associated with a project is monitored against a particular AFE. Therefore, an Oil and Gas ERP system is what the businesses operating in this industry requires. This system must offer specific features like multi-stage budgeting, item and service level planning, budget approval workflows, capitalization of AFE, issuing materials to the wells, managing item conditions, and much more.
These elements are essential for ensuring the solution has a solid Project Management module or Project System that enables businesses to create and manage these processes. They also ensure that the solution has a back-to-back connection. Last but not least, upstream oil and gas businesses are adopting cutting-edge technologies for good reason. The advantages that businesses gain from such technologies multiply dramatically when they are integrated with an existing ERP system, such as IoT-based apps that produce continuous data streams. This is so that users of the ERP programme can create workflows and alerts based on the data by viewing it in the context of assets or transactional data.
Industry of the Downstream Petroleum Industry
These components are crucial to making sure the solution includes a strong Project Management module or Project Systems that enable firms to develop and oversee these processes. Additionally, they guarantee the solution’s back-to-back connectivity. Not to mention, upstream oil and gas companies are implementing cutting-edge technologies for legitimate reasons. When such technologies are connected with an existing ERP system, such as IoT-based apps that provide continuous data streams, the benefits that organizations receive from them drastically increase. Users of the ERP programme can then use the data to build workflows and alerts by seeing it in the context of assets or transactional data.
The ability to see inventory at all points throughout the supply chain, from retail stores to terminals, is one of the most important features of the downstream oil and gas business. Continuous inventory visibility at retail outlets and notifications when these levels fall below a threshold can be provided by an ERP system that is designed to support the digital transformation in the downstream Oil and Gas industry, such as that of VIENNA Advantage.
Another crucial component of the downstream oil and gas industry is distribution, and it is necessary for businesses to have visibility into their distribution network and to communicate with transportation service providers in order to complete these tasks effectively. An ERP that can support different modes of commodity distribution, whether it be through pipelines or another mode of transportation, is required.
A downstream oil and gas company would need an ERP that can support a variety of terminal activities. These activities could be anything from providing visibility on the terminal inventory, while taking into account variations in product volumes that depend on ambient temperature, to managing bills of material and recipes for different blending operations. Last but not least, a comprehensive pricing module that enables businesses to carry out complex calculations and publish pricing based on a variety of external factors and statutory or taxation requirements should be able to support all of these processes via the ERP. Pricing, billing, and managing customer loyalty programmes are key processes in any downstream Oil and Gas business.
Oil and Gas Industry Digital Transformation and Manufacturing 4.0
In terms of digital transformation, the oil and gas sector is still relatively young. The industry, whether it be in the upstream or downstream sector, has faced constant pressure to jump on the bandwagon of the digital revolution, and it is only recently that they are becoming more open to emerging technologies like artificial intelligence (AI), the use of drones, robotic process automation (RPA), machine learning (ML), and the internet of things (IoT). Both areas of the industry will gain from the use of cutting-edge technology.
Oil and gas companies, for instance, can find deposits in the most remote locations, which opens up new opportunities for cost-saving measures in downstream operations while also providing upstream operations with real-time visibility into the channels for distribution and transportation. These actions are unquestionably essential for any organization, but especially at this time when the sector is struggling under the pandemic’s shadow. The impact of COVID-19 has been devastating for the oil and gas sector, which was already struggling to maintain efficiency, sustainability, and profitability.
Organizations have been forced to rely on their digital assets in the wake of the epidemic and the all-time low in oil prices. Within the oil and gas sector, there is an increasing push to improve sustainability. A solid digital framework with RPA, IoT, and ML embedded together with the deployment of drones becomes inevitable when combined with the desire to boost profitability, enhance decision-making skills, and maximize labor efficiency.
Making Technology Work for You
Across all industries, the majority of businesses are now moving to the cloud, and for good reason. Organizations are abandoning outdated phasing in and out systems and turning to cloud technologies in a persistent push to digital business. Maximizing asset creation, democratizing data access so that it is available to everyone, and facilitating well-structured administration of business operations are just a few of the many advantages of moving to the cloud. These advantages result from the organization’s total digitization on the cloud.
On the road to full digitization, the oil and gas industry is far from perfect. The sector as a whole is lagging behind despite efforts to digitize.
It is no longer unusual to adopt new technology; rather, it has become the standard. Despite the sector’s sluggish start, the moment to act is now. The chance to expand operations and have an impact on the market is now available to enterprises. These firms only require a clear road map that will make the implementation process less time-consuming and more effective, especially as technology becomes more widely available and more affordable.