The past year has seen several significant acquisitions in the oil and gas industry. ExxonMobil acquired Pioneer to secure high-quality drilling locations in the Permian Basin. Chevron acquired Hess to further strengthen its position in the U.S. shale industry. ONEOK purchased Magellan, creating a significant pipeline giant, and Occidental Petroleum announced plans to acquire CrownRock to expand its footprint in the Permian Basin.
Consolidation in the oil and gas industry continues as ConocoPhillips recently announced plans to buy Marathon Oil. These company expansions bring opportunity for smaller oil and gas companies to integrate new assets the newly combined organizations are selling off.
Acquisitions in the oil and gas industry can become quite complex when integrating new assets. The amount of data around revenue, land ownership, contracts, and well information requires extra cleanup effort, which many E&P companies tend to avoid. This only causes issues down the line. Avoiding data cleanup results in incorrect financial information, regulatory reporting issues, material weaknesses, joint venture audit exposure, royalty owner lawsuits, and more.
Historically, oil and gas company acquisitions involve divestitures of assets that don’t meet the combined company’s needs or strategy. Production assets as well as midstream, transportation, and service assets are typically picked up by private equity firms or mid-size oil and gas companies looking to grow their energy portfolio. As these firms look to acquire new assets, it’s important to integrate these assets quickly and thoroughly—which involves a cleanup strategy.
Before integration, pay attention to these areas when preparing for data cleanup:
To process revenue, land and revenue decks must have complete and up-to-date information. When it’s time to transfer this information over to the new company, royalty and working interest data is often incomplete or inconsistent, which requires the acquiring company to clean up and verify data. It can be a lengthy process, but delaying it will only exacerbate problems in the long run.
Cleanup efforts should ensure interest and ownership information is accurate and complete before the integration happens. Inaccuracies can lead to significant issues in revenue distribution. If a company integrates assets with incorrect working interest data, accounting will face ongoing challenges. They will need to manually adjust revenue calculations and maintain reports outside the automated system, which leads to inefficiencies and potential errors.
Without this cleanup and verification step, companies risk ongoing operational inefficiencies and potential financial inaccuracies.
It’s important to ensure the integrated assets come with complete and consistent well master data. Well information must be registered with the state and federal government, and there’s asset information that needs to be tracked. The acquiring company needs this information to be clean, especially for regulatory reporting.
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, including spud date, production status, bottom-hole location, API number, impairment group, etc. Depending on the asset, a significant well master cleanup effort should be part the integration plan. Any manual processes to report and analyze well information outside the systems should be eliminated.
There are a lot of different systems involved in well lifecycle tracking. There are systems for economics, drilling, production, reserves, revenue, AFE, etc. The challenge is integrating well data from acquired assets into the company’s systems. The well lifecycle process must be reestablished and clearly defined. All systems and departments need access to the same clean well data to maintain consistency and smooth operations. Plus, consistent and accurate production and revenue reporting depends on integrated well information.
At Trenegy, we’ve helped oil and gas companies strategically integrate newly acquired assets and manage the sheer volume of information to stay consistent and efficient. To learn more about how we can help your organization, email us at info@trenegy.com.
