WHITE PAPERS

The Benefits of Software Optimization – Can You Afford Not to Consider It?

03/18/2021 - By Russell Corl, Managing Partner, Magnum Forge

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Our clients frequently ask us to help them get the most out of their accounting, land, and production volume systems. Their questions come in many forms:

  • Shouldn’t this system do these calculations automatically?
  • The software vendor says the system will do this, but we couldn’t get it to work.
  • Are other clients using this functionality?
  • Why does it take so long to get this data into the system every month?
  • Should we move to a new software application to get better functionality?
  • Do other oil and gas companies have these issues?
      • Based on our analyses, the root causes of most issues companies have leveraging their software fall into a few key categories:
  • Failure to implement advanced functionality during the original implementation or as new functionality is released. This includes inadequate reporting.
  • Inefficient processes that delay processing times and allow work to stall or get lost.
  • Low-quality data from the original implementation, from acquisitions, or a lack of data governance.
  • Lack of robust interfaces between key systems, leading to dual data entry and differences in data across systems.
  • Lack of training required to fully exploit system capabilities.
    In this article, we will look at these issues and what can be done to resolve them.

FAILURE TO IMPLEMENT ADVANCED FUNCTIONALITY

    For most of our clients, the most common cause of unused functionality ties back to the software’s original implementation. Implementation projects are known for running over schedule and over budget. The substantial effort required to implement all the advanced functionality in a system often leads to companies abandoning the implementation of the functionality that delivers the most significant benefits, putting off implementing it until “after the dust settles.” As a result, key functionality or even entire modules that could save time every month remain unused for years.

This problem is compounded by the fact that software vendors update their applications regularly. Sometimes this is to close a gap in functionality, but it can also result from business conditions changing. For example, most land and accounting systems track ownership by formation or measured depth; however, this was not always so. Before the rise of US shale drilling, most companies were exploiting a single reservoir on a lease. As horizontal drilling and fracturing became an economically reasonable method for exploiting shale plays, stacked plays became more attractive, and it became increasingly essential to stratify formations by depth. Clients pressured software vendors who did not offer this functionality at the start of the shale revolution to develop it, and this functionality is now relatively ubiquitous in E&P software. Many companies still do not realize that their existing software application inherited this functionality in a release from a few years ago.

Examples of some of the most common functionality that goes unused are:

Revenue Accounting

  • Automated generation of revenue distribution transaction detail from volumes and commodity pricing
  • Complex pricing calculation capability and the use of commodity index data to automatically calculate monthly product prices
  • Automatic generation and release of revenue accruals
  • Automated state and regulatory reporting and payments

Joint Interest Billing

  • Automated allocation of cost across wells based on production volumes, well status, or other factors that change monthly

Inventory and Materials

  • Tracking of materials transfers and yard inventory that is tightly integrated with JIB processing

Production Accounting

  • Automated well-level volume allocations using complex algorithms and fuel use
  • Tracking three-stream volumes (separating NGLs from residue gas) and tracking NGLs by component liquid
  • Reconciling run and LACT tickets in-system to purchaser statements
  • Tracking water to meet state requirements for water reporting

Accounting

  • Fixed assets module for automatically generating depreciation and depletion entries
  • Lease Administration
  • Tracking ownership by depth or formation
  • Lease acquisition/broker activity to capture critical lease data ahead of securing a lease and to streamline lease input

Cross-Module

  • Workflow to streamline processes that cross multiple functions or users
  • More efficient transaction engines to reduce processing time

Other advanced functionality that is unique to each application often goes unused. Deep functionality requires some configuration and may require some enhancements to data, but it can deliver month-over-month efficiencies once implemented, offering an ROI for the project and ongoing G&A savings. Magnum Forge is well versed in all the current accounting, production, and land systems and can help you take advantage of the functionality that you have paid for already.

    Not only do many of our clients not make full use of the advanced functionality, but many also find themselves creating reports in Excel instead of in the system. Sometimes a canned report’s format is undesirable, or the client wants to tie data from two modules together. With our knowledge and understanding of canned reports, Magnum Forge can often find a report close enough to what clients need that it can be used as a basis for a custom report. As with the advanced functionality, having the data you want without the need for manual input reduces monthly effort and errors.

INEFFICIENT PROCESSES

    It is common for companies to implement new software without considering changes that can streamline processes in the new system. As their software vendor releases new functionality post-implementation, companies often implement the new functionality without considering process implications. Inefficient business processes can result in delays in processing that can affect business partners and cash management, such as missing payment deadlines to royalty owners who have strict terms or delays in approving invoices to get them into the JIB process. A lack of process analysis and streamlining can also result in personnel spending more hours working on a process each month than needed. Given the E&P industry’s focus on G&A reductions, process redesign is an area that most E&P companies should consider.

The most common processes we find that are candidates for retooling are those that reach across multiple departments or people within a department:

New Well Setup
New well processes starting with AFE creation and ending with first sales can span months and involve land, operations, operations accounting, and possibly IT. It is common for companies to hold invoices or delay revenue distribution on new wells because critical data for the new well is not set up in their accounting or land system due to breakdowns in this long chain of processes.

New Lease Setup
New lease setup relies on handoffs from landmen to lease administration personnel and often involves division order personnel. It is common for companies to take weeks to get a new lease input due to inefficiencies in this process. These issues can lead to inaccurate acreage and lease status reporting and often drive landmen to keep their data outside the land system.

Business Associate Setup
Because business associates are used across the entire company, their setup requires input from multiple departments. They are frequently set up with a minimal amount of data. The remaining settings are often left to be added when there is a failure in a process (for example, the record is not set up as a royalty owner and cannot be added to a deck). This process is also likely to generate numerous duplicate records because there are no steps taken to verify whether the new record is needed or already exists.

AFE Creation
New well, workover, and facilities AFEs are notorious for being manual, paper-driven processes. Electronic files and workflows can speed processes and provide visibility of the status of AFEs under consideration, reducing cost and frustration.

Month-End Close
The variety of steps and interdependencies between these steps make month-end close challenging to manage. Most of our clients can reduce their monthly effort and accelerate their monthly close date by redesigning their close process.

    Magnum Forge has deep experience with your business processes that it can use to help you reduce handoffs, automate notifications, and accelerate data input to avoid delays in subsequent processes. We have hundreds of existing process flows we can use to accelerate the redesign of your processes. Let us show you how we have helped other clients to reduce their monthly effort, decrease their process cycle time, and inspire their employees to take ownership of process outcomes in their area.

LOW-QUALITY OR INCOMPLETE DATA

    Like many systems issues, incomplete or inaccurate data can often be traced back to decisions or mistakes made during the original system implementation. It is common for data loaded into a new system to contain issues that go unnoticed until after the go-live due to individual oversights or a project-wide lack of focus on data validation.

Acquisitions are notorious for bringing duplicate or unusable data into a buyer’s system. They are the most common cause of duplicate name and address records, decks that will never be used, and leases with incorrect statuses and acreage.

Day-to-day data entry slowly allows duplicates and format inconsistencies to creep into your data. Lack of data governance or clear procedures can result in duplicate records in many data sets, and inadequate training can result in users creating unnecessary records or incorrect records that confuse other users or keep the system from working as designed.

A few common examples we see across many clients are:

Names & Addresses
Duplicate vendors cause repeated manual work when issuing 1099s or analyzing vendor spend. Duplicate owners can also create manual work when issuing 1099s and when responding to owner inquiries. Cleansing these records requires expert knowledge of how to track decedent owners or trusts and which vendors require multiple records because they operate as separate business entities.

Revenue Suspense
A failure to load revenue suspense during an implementation or an acquisition causes manual work, as suspense is slowly resolved and released over several years. The ability to release suspense through the accounting application is worth the effort to load suspense correctly.

Acreage
The inability to report on developed versus undeveloped acres or to identify when a lease is held by production requires great care when loading data into a system. If not done correctly, quarterly acreage reporting requires manual correction every quarter. Of course, not knowing if a lease is held by production can result in the loss of lease rights.

Ownership by Depth Severance
The proliferation of stacked plays made possible by fracturing and horizontal drilling makes the tracking of working interest ownership and royalty ownership by depth a critical matter. Many software vendors have recently built or improved their functionality to track ownership by depth. Still, most companies have not yet enhanced their land data to take advantage of quick reporting by depth.

Transaction History
Some clients choose to convert little or no transaction history when implementing new software or loading data from an acquisition. While this saves time and cost for the project, it makes research or reversing and rebooking historic transactions very difficult. A robust business intelligence solution can resolve the reporting issue but not the reversal issue.

    Magnum Forge understands the value of your data and how leading software applications hold it. After running a data cleansing project, we hear our clients say, “I hated working in our new system, but now that our data is clean and accurate, it is much easier to do my job.” Let Magnum Forge show you the greatest potential efficiency benefits you can get from improving your data.

LACK OF ROBUST INTERFACES

    In our experience, few companies have built all the interfaces they require to minimize dual data entry and ensure that systems and users share accurate data with each other. Interfaces often get thrown out of scope on a software implementation project to stay on schedule. Once up and running on a software application, our clients’ IT departments are too busy to create, test, and implement a reliable interface. This lack of follow-through delays the data being available in key systems, causes errors when information is hand-keyed into the second system, or results in laborious processes because one system never feeds data into another where it is needed.

The key interfaces we see that deliver the most significant benefits to our clients are:

  • Production volumes from a field data gathering (FDG) system to an ERP for use in revenue distribution. (Some clients push sales volumes from the ERP to the FDG for comparison, depending on where they do well level allocation for dailies and sales volumes.)
  • Lease administration system and accounting system integration to move key master data (leases, wells, business associates, equipment, disposition codes) between the two and to push land payments from the lease system to the accounting system for payment.
  • Division of interest data from their accounting system to a lease administration system for netting acreage or a reserves system for netting revenue and cost.
  • Daily volumes or flow measurements from SCADA systems to a production accounting system.
  • Invoice coding information (vendors, properties, accounts, AFEs) from an accounting application to an eInvoicing system.
  • Cost information from a well information system (WellView, WellEz, or others) to an accounting system for monthly cost accruals.
    Magnum Forge has deep experience with interface development, testing, and deployment and can help you reduce dual entry and improve the accuracy and speed with which you move data between systems.

INADEQUATE USER TRAINING

    Our clients often overlook the importance of user training when implementing new software. For some projects, training can be as little as a couple of hours rushing through screens using demonstration data instead of live data and without references to business processes. Once a company is up and running on an application and staff turnover begins, new users typically get just a few minutes of training to get them up to speed from a colleague who may or may not know the software and processes well enough to convey them effectively.

Training is often the root cause of issues that our clients raise, thinking they are functionality issues:

  • “There is no functionality for A, B, C in this system.” – The system often has this functionality, but the users do not understand how to make it work or enter the data required to make it work.
  • “I can’t get a report that shows me X, Y, Z.” – Most systems have a multitude of canned reports, and companies can address this issue quickly and for little cost by training users on system reports and inquiries.
  • “The system miscalculates X, so we don’t use that functionality.” – This could be a configuration error or a simple misunderstanding of how the system holds data.
  • “I can’t believe a system this mature doesn’t do X.” – It probably does, and Magnum Forge can show you how to make it work for you.

The most common types of training we help clients deliver after they are live on a software application are:

  • One-time training to allow users in a department to enter data consistently and in alignment with configuration choices. An example of this is training on how a lease administration system relates tracts to leases and how to always enter lease and tract data to provide consistency across regions and ensure land reporting is accurate.
  • New employee training documentation that can be delivered by an experienced employee or used as self-study material with exercises.
  • Job aids to guide new or experienced employees through how the system is used by their employer and as a desk reference for unusual situations.
  • It is difficult for most companies to maintain the capability to train their people on complex software applications. Magnum Forge delivers user training every day and has developed user guides for implementations, new employee orientation, and new module implementation.

TAKE A STEP TOWARD GETTING THE MOST OUT OF EXISTING SOFTWARE

Getting the most from your software does not always require costly changes in applications or design. Magnum Forge brings industry-specific insight and software expertise to each client. We help our clients identify opportunities that deliver the greatest benefits for the lowest cost and we deliver on those expectations. Magnum Forge can help you align your system’s data and functionality with your business and reporting requirements to reduce wasted IT hours spent on troubleshooting or developing in-house apps to address the gaps.

Magnum Forge has years of experience helping clients identify the inefficiencies and shortfalls in your current platform and optimizing their software to get the most out of what you already own.

Call us today at 713.252.5028 or email us at contact@magnumforge.com to see how we can help.

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