Employing Capital Management Software to Facilitate Capital Efficiency and Agility
Author: Marsha Vigil, Aucerna
(NOTE: the opinions expressed in the blog do not represent legal or regulatory guidance but are intended for information and to stimulate discussion only.)
Some experts are predicting higher oil prices in the near to midterm, while others predict price movements will be less extreme but also more difficult to predict. With the continued price volatility, it is more important now than ever that companies can move quickly, make and revisit capital and resource allocation decisions frequently, and forecast, and report accurately without significant process and tool workarounds. Capital efficiency starts with corporate strategy and requires agility and foresight to pursue, abandon, or defer capital projects. Employing agile software that supports integrated strategy, planning and execution is imperative in today’s marketplace in order to facilitate capital efficiency and agility.
The most capital efficient oil and gas companies have implemented robust Execution Solutions in order to optimize capital processes, build and maintain capital budgets, steward projects towards the budget and perform easy project lookbacks.
Capital Management Challenges
Some of the typical capital management challenges companies are facing today when trying to establish capital efficiency and agility are:
- Ineffective cross-functional collaboration – Companies need to implement a capital decision and project lifecycle framework that permeates across the entire organization from Strategy, Finance, Capital Projects and Operations.
- Inefficient workflows to capture, analyze and approve capital budget requests based on an inventory and selection of capital projects.
- Time-intensity of processes – Comparing budget vs. forecasts vs. actuals is manual and ad-hoc. Forecasts take too long and are likely out of date. By the time you complete and submit your 3+9, it’s time for 6+6. Forget about monthly forecasting.
- Inability to measure capital project performance at field, pad, and/or well level – Companies need to have sufficient granularity of data in order to capture, analyze and report to management.
- Data integration – Dynamic processes and integrations are key to simplifying and automating the re-forecasting of projects
- AFEs, Capital Projects, and Budget-line items are tracked in disparate systems or a multitude of spreadsheets
- Lack of monitoring – Instant visibility into projects needing reforecasting or budget line-items approaching overspend
- Agile corrective action – Ability to easily perform lookbacks, revise budgets, reforecast spending and/or move projects in and out of budget based on company strategy.
The Solution - Driving Capital Efficiency within your Organization:
In order to drive capital efficiency within your organization, you must adopt a holistic approach from corporate strategy through execution. A holistic approach manages projects in a dynamic sense: they can be initiated, altered, maintained, suspended and terminated based upon market, competitive and internal environments. Adopting a robust capital management solution will help facilitate capital efficiency and agility at the project execution level.
Implementing an all-encompassing solution that supports integrated budgeting, forecasting, capital tracking and AFE management workflows is imperative to achieving capital efficiency. Selecting a solution that integrates seamlessly with other key source systems will provide everything your organization needs to make proactive decisions based on the latest and most accurate information.
Does your current capital management solution facilitate capital efficiency and agility? Ask yourself:
- Can you create and approve budgets based on an inventory of capital projects?
- Can you automate and refresh your capital projects inventory with updated capital and timing?
- As the year progresses, can you update your budget to reflect changing conditions or corporate direction?
- Can you import actuals into capital projects, replacing historical forecasts with actual spending?
- Can you blend actuals into the project forecast and quickly come up with a new, best possible, forecast for that project’s future spending?
- Can you monitor past and future spending at the project level instead of only for an individual AEF?
If you answered no to any of the questions above, it might be time to reevaluate your current solutions in place. Better position your company by adopting software that supports integrated strategy, planning and execution to help drive capital efficiency and agility from the field to the boardroom.