7 Tips for Effective Training

Two generally accepted approaches to learning—passive and active—drive most training activity. Passive learning is reading, seeing and hearing, while active learning is saying, writing and doing. Studies show that retention rates are 20 to 40 percent higher in active learning. Unfortunately, the passive approach is taken all-too-often via streaming videos, death by PowerPoint, long-winded lectures and e-learning. Once the thunder and lightning is over, employees quickly revert to the old way of doing things because none of the training resonated with the audience.

Developing a training strategy that will facilitate learning and truly change how employees do their jobs on a daily basis is not an easy feat. By following a few simple steps that leverage active learning techniques, an organization can ensure that trainees are armed with everything they need to be successful.

  1. Allay fears. Fear is the biggest driver of the “this won’t work!” mentality. It is normal for trainees to feel concerned or confused. Change, no matter how little, can make life more difficult at first. Do not pretend like it does not exist or minimize trainee feelings. Instead, work together to understand and eliminate those feelings by gathering individuals or small groups to discuss specific ways day-to-day tasks will change. Link the change to tangible end goals with desirable outcomes. Lastly, provide support so trainees have a direct lifeline when they need it.
  2. Read between the lines. Often, a trainee’s concern is not what is being directly stated. “This won’t work for me” could mean, “I have no clue as to what is going on,” or “I’m really afraid that my job is going to change for the worse.” Address these concerns immediately. Try to get the root of the issue and find answers. Even if the issue cannot be resolved completely, take the time to investigate and follow up. It will go a long way in calming anxiety and building trust.
  3.  Leverage Subject Matter Experts. Subject matter experts (SMEs) are the people who know their areas of the organization inside and out. The SMEs know their purpose in the organization and how their jobs fit into the bigger picture. Find these people early—at least one for every function within the organization. Do what it takes to enable the SME to become a champion for change. SMEs will know their people and processes well and can help develop the best strategy for training. Because of their comprehensive knowledge, SMEs can also predict where disconnects or trouble may arise.
  4. Get to hands-on training as fast as possible. Hands-on training can be done in groups or in a one-on-one setting. What works for one person might not work for everyone. Regardless of how it is done, the faster trainees can practice real-life scenarios, the faster they will learn. Even if trainees don’t fully understand the changes that will be taking place, allow them access to the new way of doing things and give them time to understand the concepts while at the helm. Don’t rely on pre-made, step-by-step lists. Instead, devote more time to hands-on training where users can build their own lists in their own language.
  5. Highlight the positive, but don’t gloss over the negative. There will be a number of differences in how work is performed in the future. For example, documents may be handled differently, or there may be more approvals (a.k.a. red tape) because there were no controls in the old process. Focus on the desirable end goals and the big picture, not on how perfect everything will be as a result of the change. Be realistic. Acknowledge that processes might take longer than before, but explain why.
  6. Bridge the gap. Asking trainees, “How did this process work before?” can be an extremely powerful tool. Understand how he or she worked before and then map out the new process in terms of the old, pointing out what has changed and how the new process handles each step. This will not only dispel fears, but it will also help trainees make individual connections to the process.
  7. Teach employees how to problem solve. There is no way that every scenario or situation can be covered in training. Instead, training should focus on critical elements and common scenarios. Trainees should be given time to fundamentally understand their new work. Arm trainees with all the back up they need through training materials and a lifeline. If trainees understand what they are doing, why they are doing it and where they can find more information, they will be better equipped to handle a problem if it arises.

Change is hard on an organization and its people. Pushing change down to employees without proper preparation will most likely lead to failure and disconnects. Trenegy helps companies address change head-on. We design training strategies that help employees move past their fears and become a part of the organization’s future.

Creating a Disciplined AFE Process: 4 Key Practices for Midstream Companies

Although acquisitions are a quick way to expand midstream operations, midstream companies are also presented with opportunities to grow organically. Organic growth requires disciplined engineering, construction project management, and commercial operations and processes. The glue that ties the process together is a disciplined Authorization for Expenditure (AFE) process. The commercial modeling of projected revenue from producers, engineering estimates for construction, and project management must be linked throughout the AFE process. 

The ultimate goal of the AFE process is to minimize the variation between the budget and actual value-add curve. Create a disciplined and streamlined AFE process to minimize value-add variation:

Make the AFE Central: The AFE should not be viewed as merely the document used to obtain approval for beginning the planning and construction process. The AFE should extend across the budget, forecast, commitments and spend. The AFE should be connected to the GIS, land, accounting, procurement and forecasting systems. For example, we helped a client build an AFE process linked to each of these systems. Any recorded changes to the land right of way (ROW) and GIS data are connected to the AFE. Purchase commitments, forecasts and actual spend is recorded against the appropriate AFE line items. The AFE system is part of a hub that provides one place for reporting and analysis of midstream value-add projects.

Capture Initial Assumptions: The initial assumptions used to budget the construction project should be captured and recorded as a part of the AFE. Key considerations such as ROW costs, pipe cost per foot, and compression requirements should be documented. Inevitably, a variation will occur. The ability to look back at engineering assumptions to improve projections over time is key to continuous process improvement. When the project is complete, you will have information to perform a thorough analysis of budget versus actual assumptions.

Measure Accountability: Project Managers leading a construction process are accountable for completing the project on time and within budget, and managing cash flow requirements is vital to maintaining investor confidence. Therefore, project managers should be accountable for accurately projecting cash flow requirements. The projection of cash commitment timing and estimated cost to complete should be tied into the AFE forecast and possibly an updated budget. One of our midstream clients monitored their project managers’ forecasting accuracy on a sliding scale. Forecasting accuracy expectations were set at certain thresholds based upon time horizons.

Involve the Project Manager Early: The project manager should be assigned as soon as a commercial opportunity is identified. Often, commercial terms are set based upon expectations of the project manager’s ability to meet cost, quality and time commitments. The project manager should be a part of these discussions and provide input to the terms of the agreements with producers. For example, the project managers have intimate knowledge of availability of materials, labor and equipment.  A labor shortage in a particular basin will impact delivery and cut overtime.

Trenegy encourages our clients to use the AFE process as a mechanism for ensuring cost, quality and time targets are met for all construction projects. Trenegy specializes in helping companies design and implement AFE solutions to manage the entire construction lifecycle.

7 Captain Obvious Consulting Services That Should Go Away

Consultants are known for inventing new words and attempting to turn everyday words into revenue-generating service offerings. In many cases, these “service offerings” are what give consultants a bad name in the industry. How many times have you heard, “The consultants came in and told us what we already knew”? Thank you, Captain Obvious! Below are the most notorious offenders:

Value Analytics. How many times have we heard a consulting firm or software vendor come in and say, “Let us develop a value proposition for you”? The consultants come back with a list of generic, lofty savings that merely state the obvious and serve the consultants’ best interest. Management already knows whether a project is a good idea or not. A value proposition rarely changes anyone’s mind. Paying an outside firm to develop a value proposition with nebulous numbers and statistics is useless.

Complexity Reduction. A large strategy consulting firm coined the phrase complexity reduction. The concept is to identify cost reduction or revenue growth opportunities through simplification. Conceptually this is a good idea. The only problem is the consultants’ process for identifying complexity reduction opportunities is overly complex and time consuming. The consultants spend months creating large binders full of detailed, complexity-reducing analysis based on time and motion studies. Statistics rarely reveal whether a business process should be eliminated.  90% of the time, management intuition dictates where simplification can occur.

Performance Management. Performance management is the most overused term in consulting and software sales in the past 10 years. It has become a catchall consulting term describing anything from budgeting and dashboards to data warehousing and HR performance reviews. Insert the word enterprise or corporate in front and it becomes a software package. Every consultant and software vendor provides performance management offerings to some degree. Performance management is really all about making sure people achieve their goals. In other words, do their jobs. Do you need a consultant to help you make sure people do their jobs?

Anything that starts with Enterprise. Inserting the word enterprise in front of anything really means that the consultant will do it all for the entire company. That is to say, there are no limits on what you can spend on the service provided by the consultants. One of the larger consulting firms has over 100 service offerings with the word enterprise in it. My favorite is Enterprise Water Strategy…Seriously. Google it.

Big Data. This is a relatively new one, and all the big software and consulting firms have a solution for Big Data. Enterprise Big Data is even more important. Big Data is quickly becoming an overused term for extracting information from large amounts of data. A select few software companies are really addressing the challenges; however, everyone is jumping on the bandwagon.

Employee Engagement. Another nice consulting term for making sure employees do their jobs with a happy heart is employee engagement. Consulting firms offer employee engagement services to tell management the obvious. Employees want more recognition or money, fewer late nights and more meaningful work. Many large organizations staff Employee Engagement departments filled with people who were not happy with their previous jobs, which required them to do actual work. The Employee Engagement function spends most of its time sweeping up behind bad bosses. Here is an idea: bad bosses should either be fired or removed from a supervisory role unless the company is really not concerned with employee satisfaction. Also, let’s not forget, there are some jobs that are just unfulfilling and no amount of employee engagement will change the nature of the job.

Anything ending in Transformation. Large consulting firms and software vendors offer business transformation services promising to take an organization to places beyond their wildest dreams. How can a software product transform a business? Having a consulting firm spend months or years analyzing market data and formulating transformation options rarely overrides the executive team’s intuition. Moreover, waiting for the results of a lengthy, statistical market analysis is contradictory to transformation. Competitors are innovating based on intuition and industry experience and are transforming more quickly.

Beware of Captain Obvious and if you need outside assistance, find consultants who will provide quick answers and rapidly move your company through implementation. Trenegy is an implementation-focused consulting firm. Learn more about our philosophy here.

 

*Graphic design by Nathan Stillie and Joshua Kemble. Get your Captain Obvious tshirt here.

E&P Company Acquisitions: Avoid these Pitfalls

Exploration and Production (E&P) companies face unique data challenges when integrating newly acquired assets.  The sheer volume of land ownership, working interest, market contracts, and well information crossing multiple functions requires extra time and effort to clean up during the integration.  Therefore, many E&P companies avoid much of the needed clean-up work during integration, causing inefficiencies in processing revenue, regulatory reporting and land administration.  Oftentimes the result is material weaknesses, joint venture audit exposure, royalty owner lawsuits, excessive prior period adjustments and delays in financial reporting.

Avoid the integration exposure by planning accordingly and paying close attention to these three areas:

Revenue and Land Decks: To process revenue accurately and eliminate manual revenue calculations, land and revenue decks must have complete information. However, royalty and working interest data from the acquired company is frequently incomplete and inconsistent across various business functions. This happens when critical information is housed in different places, often in spreadsheets. The effect is exacerbated when data updates do not happen concurrently across the business, leaving a wake of inaccurate data.

Set expectations for a deck analysis and cleanup effort to ensure all interest and ownership is complete and accurate before the integration is complete. If a company makes the mistake of integrating assets with inaccurate working interest data, accounting staff will continue to build revenue calculations and maintain reports outside the system.

For example, an E&P company found a significant number of royalty interest and working interest burden discrepancies between the land and revenue decks. The company realized that the deck information set up by the legacy company was not sufficient to process revenue. The company conducted a lengthy research and reconciliation process to align working interests, which allowed the revenue process to be automated and integrated in the new company.

Take the time to understand what information is required in an acquisition. Armed with that knowledge, begin the cleanup process.

Well Master: E&P companies often find the acquired company’s well master data is incomplete or contains a mix of completions, gathering points, storage facilities and other cost centers. Moreover, the information describing each of the wells or completions may be inconsistent. Each well or completion has dozens of assigned attributes in the well master database for reporting and analysis. Attributes include spud date, production status, bottom-hole location, API number, impairment group, etc.

Depending upon the size of the acquisition, a significant well master design and cleanup effort must be included in the integration plan. Any manual processes to report and analyze well information outside the systems should be eliminated as a part of the integration process.

Well Lifecycle: Well information is stored in various systems and departmental databases within an E&P company. This includes land, revenue, production, economics, drilling, AFE, reserves and accounting. The challenge is integrating well information across each of these systems and departments when an acquisition occurs, new well comes online, changes status or is plugged and abandoned.

For example, the well lifecycle process often starts in accounting when initial expenses are allocated to the well. If property accounting assigns a cost center to a well which is not cross referenced to a well in the production system, consistent production and revenue reporting will be an issue.  Similarly, during an acquisition, the well lifecycle process begins again in the new company.

A clearly defined well life cycle process is a must, regardless of whether the sharing of well information is automated or not. The integration process should be an integral part of well lifecycle process.

Trenegy encourages companies to include the data alignment and cleanup efforts in the integration plan.  A company may state, “We will clean up the data later,” and find themselves unable to make time for cleanup afterward. These are merely a few of the issues causing significant delays in integrating assets in an E&P company.

Trenegy specializes in helping E&P companies prepare and integrate assets. Feel free to reach out to us at info@trenegy.com to learn more about how to prepare for an integration.

Honey, I’m Moving In: Managing Acquisition Integration

Ask any married couple about first moving in together and you are certain to hear a variety of tales ranging from, “He kept a hideous couch from his bachelor pad!” to “She commandeered the bathroom.” The funny highlights are a welcome respite from tough, emotional decisions: Whose furniture goes to Goodwill? Who parks in the garage? Are bank accounts going to be combined? Toilet paper roll up or down? Couples have to make countless adjustments during the first year of marriage.

Organizations often struggle to effectively integrate newly acquired companies. The rude awakenings encountered by newlyweds are amplified in a corporate union involving multiple stakeholders and millions of dollars. The most successful organizations follow these integration rules:

Don’t Dismiss the Ratty Couch: Employees will be uncomfortable in the early stages of integration and are susceptible to other opportunities. It is important to identify the departments and employees critical to the new organization during integration planning. Pick the best from each company, taking advantage of integration activities to eliminate ineffective departments or employees. Evaluate enterprise projects in the same way—determine which should continue and which should be eliminated. Use a combination of retention bonuses, clearly communicated long-term HR succession plans and employee involvement to reduce the chance of losing critical resources. 

Forget Who Used to Park in The Garage: The new organization must operate under a single set of business processes across similar functions to maximize shareholder value. Do not assume that the processes from one organization will always be better than the other. Both sides will have to compromise and adapt. Decide which business processes to use going forward and make the way clear. Create a realistic plan for rolling out and communicating standardized processes after the new organizational structure is established. Provide training and resources for employees whose roles are changing. It is likely that one group may need to pause to allow the rest of the organization to catch up. Not everything has to change at once.

Postpone Account Consolidation Until Ready: Every newlywed couple must decide whether to consolidate bank accounts. Consolidation involves more pain up front while separate accounts and accounting software require more maintenance long-term. Similarly, organizations must decide when to combine systems and information by using a consolidation tool or by migrating to a single environment. A consolidation tool can work well for a period, but a new system can be used as a catalyst for change and drive process consistency. A consolidation tool should be considered as an attractive short-term solution during reorganization. Once reorganized, the new company can take on a significant systems integration effort.

 Surprise! I Like Toilet Paper to Roll From the Top: Even the most effective integrations will produce surprises six months to a year after completion. Nuisances are more obvious after the honeymoon phase is over. The merger and integration team needs to plan and budget for surprises. Typically, customers do not do business as expected, financial incentives do not keep the best and brightest from leaving, systems and data cannot be easily aligned, and organizational roles for similar functions are more different than expected. Keep the integration team together to address these issues as they arise.

Well-planned acquisition integrations include a thorough examination of organization, process and tools. Identify critical resources, standardize business processes, select a common ERP system and plan for surprises. Read how to effectively avoid surprises after the integration effort in Stop Playing the Glad Game: Facing the Reality of Integration.

Drilling Through a Downturn

Offshore drilling companies are the first to feel the blow of dropping oil prices. No matter the size of the organization, the downturn is hitting stock prices across the board: Transocean, Ensco, Seadrill, Atwood Oceanics and more. However, the immediate change in stock price is not always a true representation of performance.

Stock market valuations give us a sense of analysts’ speculations regarding a company’s future value. In reality, falling oil prices won’t impact drilling company operations for six to eight months.

Much of this lag is due to the long-term nature of drilling contracts. Large contracts are developed six to twelve months before a job begins. Offshore contracts usually last between one and six months. Consequently, drilling companies only recently feel the results of lower demand. Likewise, old contracts are paid out at rates set a year ago.

Oil Price Politics

According to Scotia Bank Research, Saudi oil costs about $17/b and U.S. oil costs about $55/b, on average. Saudi Arabia’s refusal to cut production has created a 1.7 million barrel/day oversupply, forcing oil prices to unforeseen lows. In previous years, the Saudis have cut production with the intention of raising prices and margins.

Analysts and economists are proposing various motives and alternative causes for the refusal:

  •  The Saudis want to hurt the Russian and Syrian economies.
  • The Saudis are intentionally preventing U.S. oil production from surpassing their own.
  • The Saudis intend to level off the market in order to lower costs.
  • The U.S. caused the oversupply, not Saudi Arabia.
  • China’s decline in demand growth caused the oversupply.

However, while low oil prices are a predominant factor impacting offshore drilling operations, the market is also saturated with a glut of new builds raised in the midst of the $100/b frenzy.

Below is a historical look at rig count fluctuations during other downturns:

Drill Rig Fluctuations

Expect to see companies react to the downturn by stacking old rigs, implementing cost cutting measures, and making strategic investments.

Rig Stacking

Based on historical rig counts (Table 1), it’s safe to say that there will be fewer rigs utilized in the coming year. Old rigs and jackups are dangerous assets to own in excess when large producers move away from the shallows and into the deep, higher-producing basins to counteract bad oil economics. Companies with a high concentration of old rigs and/or jackups will suffer the most in this downturn.

Cost Cutting

Oil and gas industry veterans know that downturns are inevitable. Widespread cost cuts through layoffs and divestiture are standard early measures. This month, BP announced it will cut 300 jobs in the North Sea, Baker Hughes will lay off 7,000 employees and Schlumberger will cut 9,000 jobs. If oil prices don’t rebound, expect more cuts across the industry.

Strategic Investing

In conjunction with divestitures and spinoffs, acquisitions are forthcoming. The fat cats (large companies with lots of cash) love the buyer’s market created by downturns. In the year ahead, smaller companies will shed excess assets to improve balance sheets. Bigger companies with liquidity will buy up assets or organizations to invest in their own futures.

Preparing for an Upturn

The most important question is, how long will this downturn last?

Historically, oil price drops and corresponding downturns last between six and eighteen months. This is generally enough time for demand to catch up with supply and for oil producers with high debt to exit the market. In other words, one year is the average amount of time the market takes to correct itself. We will likely see a price correction (toward $70-80/b) in the next 12 to 18 months, but expect a more volatile market going forward.

Despite the downturn, according to Business Wire and Rig Data, demand for drill ships and semi-submersibles is growing. Drilling companies who commissioned new drill ships and semi-submersibles in the past 15 years will have an easier time weathering the storm. Expect these companies to maintain stable revenue and make strategic acquisitions.

Offshore drilling companies who have prepared through investing in new rigs, cutting overhead costs and selling off old assets will have fewer problems weathering the storm. Companies with excess overhead, debt, or old rigs will stack rigs, divest assets and take other serious cost-cutting measures to survive.

Selecting the Right System Integrator: How to Score Candidates

Selecting an ERP system is a complex process that requires focus on a variety of issues. Most teams spend time selecting the ERP package based on how well the software candidates fulfill key requirements, budget, and preferred implementation timeframe. However, a key component is usually missing—the System Integrator (SI). Selecting the right SI to support planning and implementation can be as important as selecting the right ERP package.

A good SI has critical knowledge of how an ERP system functions within a variety of business environments. Functional knowledge helps an SI determine the configuration options that best support critical future-state activities. Successful project teams select the SI based on depth of resources, industry experience, implementation approach and support capabilities.

Depth of Resources. A deep bench is one of the most important factors to consider when evaluating an SI. One of the biggest risks to a project occurs when an SI team member performs poorly or leaves. The chosen SI should be able to backfill any position without difficulty. The location of SI consultants is another important consideration given the cost of travel.

The following considerations help define which SI offers the depth of resources needed:

  • Number of SI resources
  • Location of SI resources
  • Existence of a development/customization group
  • Use of third-party contractors
  • Access to the implementation team members during the selection process
  • Qualifications within the industry
  • Cultural fit

Industry Experience. SI industry experience pays dividends during the system design process. The SI team should be able to provide practical, functional and efficient alternatives to unexpected scenarios based on past experience. Most experienced SIs can catch issues before finishing design to avoid unexpected problems or changes in configuration. If an unorthodox problem arises, a good SI will call an industry peer and ask them to walk the client through their process.

The following reference criteria will help define an SI’s industry experience:

  • Industry specific projects
  • Simple projects within the industry
  • Challenging projects within the industry
  • Cross-industry knowledge that may apply

Implementation Approach. The system integrator’s approach is by far the most important part of the SI scorecard. Most implementation approaches are very similar across the software tier. Tier 1 packages, like Oracle and SAP, are implemented with large SI teams on-site throughout the project. Tier 2 packages, like MicroSoft Dynamics or SAP Business One, are implemented using the “homework model” with part-time SI resources. However, there are critical components to a successful implementation approach.

Make sure an SI’s implementation approach includes the following components:

  • A change management plan
  • A certified project manager with industry experience
  • Access to the system within the first few weeks of the project
  • An industry-specific data model to drive key metrics and master data setup
  • Comprehensive reports, interfaces, conversion and extension (RICE) approach
  • End-user participation in design, unit, conversion, and integration testing
  • A link to the support organization

Support Methodology. The SI’s project and post-implementation support methodology is a commonly forgotten step. Bad support can turn into an unwelcome surprise. A poorly developed support model during implementation can affect the overall project timeline and budget. End users develop negative perceptions about the system when impacted by system down time or poor performance during implementation. Day-to-day business operations can be severely impacted if the system is not performing well after go live.

Ask about the following elements of an SI’s post-implementation support model:

  • In house or contracted applications support model
  • Number of people staffed as support
  • Third-party add-on support
  • Access to system environment performance statistics
  • Service Level Agreements

System Integrator Score Graph

Trenegy is a Houston-based management consulting firm equipping energy and manufacturing companies for growth and change. Trenegy helps companies select the right ERP/SI team, properly prepare for an ERP implementation, and successfully implement the solution. For more information, contact us at info@trenegy.com.

Don’t Believe These 5 IPO Myths

The migration from a privately held to a publicly traded company can be onerous. Preparing for and operating after an IPO means that company owners must transition from operating with a degree of information privacy to working under the keen eye of regulatory bodies and shareholders.

Executives must navigate a complex set of steps when migrating to a new operating environment to provide confidence to external shareholders and regulators. Many of the steps are necessary, yet a few are myths. Falling prey to the myths could make the IPO process overly expensive.

Myth 1: Implement a Tier 1 ERP to provide the right level of reporting and control over financials. A Tier 1 ERP like Oracle or SAP ECC can support the reporting and control requirements but can impose a significant cost burden on a company. There are a variety of Tier 2 packages like Microsoft’s Dynamics NAV or SAP’s BusinessOne that can provide similar reporting and controls at a much lower cost. NAV and BusinessOne both provide more than 600 different authorization points to limit employee access to key transactional data. Additionally, both provide strong reporting capabilities. Companies preparing for IPO can take advantage of these systems at a fraction of the cost of their Tier 1 counterparts.

Myth 2: Build out large administrative departments to mirror large publicly traded companies. Companies need key administrative functions, including HR, Legal, Internal Audit, Procurement and IT. Privately held companies often have one department support more than one function with little worry about segregation of duties. Transitioning to having these functions supported by separate departments to provide investors a level of comfort around segregation of duties is costly. Combining a strategy of selective hiring and outsourcing key functions with using the right systems controls and documented procedures will provide the appropriate level of segregation of duties.

Myth 3: Fire your accounting firm and hire a Big 4. Depending upon the complexity of the business and the internal finance and accounting staff’s knowledge, many public companies are able to successfully satisfy investor and board requirements with a regional or national accounting firm.  More complex companies with unique legal entity and tax structures oftentimes rely on the Big 4 to answer some of the tougher questions.  However, this does not dictate the IPO needs to fire the regional accounting firm.  This may require a shift in roles and the use of multiple firms becomes most efficient and effective.  The regional firm can provide tactical services at reasonable rates while the Big 4 can provide answers to the more complex questions.

Myth 4: Create a budgeting process that requires detailed input from all parts of the organization. Equity firms will request a significant amount of plan-to-actual information from the due diligence through post-IPO timeframe. Following IPO, companies will often overcomplicate the budgeting and planning process, assuming the public company board will want to review information at the lowest level of detail. The reality is different. Public company investors do not require detailed budgeting information. Newly public companies should not feel compelled to have a complex budgeting process and should simplify, or possibly eliminate, most of the budgeting process.

Myth 5: Build lengthy reporting packages for the public company’s board. A new board will most likely be convened to provide direction through the IPO process. In most cases, the equity firm sponsoring the IPO will drive who sits on the board. Executives often assume the new board will require detailed information about every aspect of the company. Accounting and Finance are tapped to develop complex board reporting packages with hundreds of pages. Board members do not typically have the time or the need to read detailed board packages. The CFO should work with the board to create a reporting package that highlights key information and provides a relevant level transparency, results and projections. This will reduce the distraction, cost and effort required to pull together board reporting packages.

Trenegy has worked with a variety companies to prepare for an IPO. Read how to effectively set up administrative functions before an IPO at Handcuffing the Kraken… Realigning for Growth

E&P Company Systems: 4 ERP Implementation Land Mines to Avoid

Exploration and Production (E&P) companies face unique data challenges when implementing new ERP systems to support accounting, land, revenue, joint interest billing production, asset management and reporting. The sheer volume of land ownership, working interest, market contracts, and well information crossing multiple functions requires extra time and effort to clean up during ERP migration.  Therefore, many E&P companies experience significant implementation delays, causing project cost overruns and disappointing the executive team and board of directors.

Avert major implementation setbacks by planning accordingly and paying close attention to these four areas:

Revenue and Land Decks

To process revenue accurately and eliminate manual revenue calculations, new enterprise systems often require land and revenue decks to have complete information. However, royalty and working interest data in legacy systems is frequently incomplete and inconsistent across various business functions. This happens when critical information is housed in different places, often in spreadsheets. The effect is exacerbated when data updates do not happen concurrently across the business, leaving a wake of inaccurate data.

Set expectations for a deck analysis and cleanup effort to ensure all interest and ownership is complete and accurate before go-live. If a company makes the mistake of implementing a system with inaccurate working interest data, accounting staff will continue to build revenue calculations and maintain reports outside the system.

For example, an E&P company found a significant number of royalty interest and working interest burden discrepancies between the land and revenue decks. The company realized that the deck information set up in the legacy accounting system was not sufficient to process revenue in the new system. The company conducted a lengthy research and reconciliation process to align working interests, which allowed the revenue process to be automated in the new system.

Take the time to understand what information is required in new system. Armed with that knowledge, begin the cleanup process.

Well Master 

E&P companies often find the legacy system’s well master data is incomplete or contains a mix of completions, gathering points, storage facilities and other cost centers. Moreover, the information describing each of the wells or completions may be inconsistent. Each well or completion has dozens of assigned attributes in the well master database for reporting and analysis. Attributes include spud date, production status, bottom-hole location, API number, impairment group, etc.

A new, integrated ERP system is useless without a clean well master. A significant well master design and cleanup effort must be included in the implementation plan and completed before go live. Any manual processes to report and analyze well information outside the systems should be eliminated as a part of an ERP implementation.

Well Lifecycle 

Well information is stored in various systems and departmental databases within an E&P company. This includes land, revenue, production, economics, drilling, AFE, reserves and accounting. The challenge is sharing well information across each of these systems and departments when a new well comes online, changes status or is plugged and abandoned.

For example, the well lifecycle process often starts in accounting when initial expenses are allocated to the well. If property accounting assigns a cost center to a well which is not cross referenced to a well in the production system, consistent production and revenue reporting will be an issue.

A clearly defined well life cycle process is a must, regardless of whether the sharing of well information is automated or not. The well lifecycle process should be designed during the early stages of the ERP implementation and before any significant interfaces between systems are built.

Cost, Production and Revenue Tracking 

E&P companies often struggle with defining the level to capture and track certain costs, production and revenue. Two major decisions need to be made regarding information capture early in the ERP design phase.

First, decide whether to capture operating costs and revenue at a field, well or completion level. This should be consistent across the company. Second, identify the operations management hierarchy of rolling up costs, production and revenue. The management hierarchy should be consistent with the economics and budgeting process.

Consistency and alignment across the entire organization are key, and the cost, production and revenue tracking decisions should be made early in the implementation process. Mock up reports during the decision process to give all parties involved an idea of the information they will get at certain levels. Without consensus, companies run the risk of dissatisfied departments managing their own reports outside of the system.

Trenegy encourages companies to include the data alignment and cleanup efforts in the ERP implementation plan.  A company may state, “We will clean up the data later,” and find themselves unable to make time for cleanup afterward. These are merely a few of the issues causing significant delays in rolling out new ERP systems in an E&P company.

Trenegy specializes in helping E&P companies prepare for and implement ERP solutions. Feel free to reach out to us at info@trenegy.com to learn more about how to prepare for a transition to new systems.