Author: Fawwaz Khuri

During SAP project implementation or roll-out, there is a peak amount of effort that is required for a successful go-live; which at high level can be defined as a SAP system that goes live on-time, within project budget, with completed data conversion while ensuring business familiarity with the new functional processes.

These targets offer natural constraints that limit what can be done for first go-live to improve business efficiency.   In the lead up to a go-live, there are plenty of one-off activities that consume a large amount of effort like business engagement, system readiness, infra-structure challenges,  training, data conversion, documentation and so on.

Mature solution roll-outs can offer more from day one (e.g. global templates or UpstreamOne), but still the nature of such projects means that time and resource constraints will exist; which for the most part need to be focused on go-live critical activities which are not necessarily in-line with what adds business productivity.   The issue is further magnified with fixed price projects where there is even less elasticity in timing and resource.

As such, in order to make the most of your SAP system, business improvement  initiatives need to be run after go-live.  These should focus on embedding the solution within a business while ensuring seamless processes which maximise automation and system controls.  These two elements are key to improved data quality, reduced processing errors and seamless periodic closures.

Critical Consulting has unique experience in global roll outs and business improvement initiatives and would be able to offer insights into such developments quickly  through focused workshops and engagements.  Our primary focus for such improvements is automation and system controls which are at the heart of data integrity and efficient processing; bringing immediately noticeable benefits to your business.

A widely used contract across the Oil  &  Gas world is the Production Sharing Contract (PSC).  Alongside the Joint Operating Agreement (JOA) which details contract information and equity sharing between the operator and its partners, the PSC dictates guidelines for Oil&Gas entitlement between the national government (commonly operating through a national oil company) and the contractors – the operator and its partners as a single unit.

Throughout the last decade, Oil & Gas exploration has boomed worldwide given reported Oil & Gas shortages which lead to a spike in their price.  This was mainly due to increasing demand from Asia as well as a significant reduction in growth of worldwide reserves.  Given the mature state of Oil & Gas assets in the developed world, Oil & Gas companies have had to look elsewhere for value on investment – namely the developing and third world.  In these regions, many have incentivised the big 6 to explore for Oil & Gas assets while maintaining a PSC to ensure national entitlement of the assets.

At high level, the contract allows foreign companies to explore at own cost.  In case where assets are discovered and are developed for production, the PSC dictates how the investment can be recovered (commonly by applying an entitlement cost cap on ‘recoverable costs’), but also how the profit oil is shared between the contractor and the government.

Given that all costs are held within the Joint Venture Accounting (JVA) module in SAP, it made sense to develop a PSC module which would be coupled with JVA for the extraction of recoverable costs.  In order to automatically produce entitlement statements (both contractor/government and operator/partners), production, pricing and sales data would also be required.  Given lack of worldwide use of SAP to manage revenue and hydrocarbon accounting for Upstream companies, this data would have to be entered directly into PSC (or interfaced from elsewhere).

SAP embarked on a mission to automate PSCs by first developing an initial solution with Agip (ENI) for Egypt in 1999.  The solution was mainly tailored to their requirements and it was soon discovered that a phase II development would be required if the module were to break through globally.  The opportunity for this came in 2001 with Shell where global requirements were gathered and a more complete solution developed by SAP to meet those requirements.  Critical Consulting was involved in the functional specification and testing of the PSC module for both the Agip release as well as the larger upgrade for Shell.

Though the module has become more mature since Phase II, it has struggled to breakthrough in a big way globally.  The main issue for this is the general lack of knowledge of how the module works, but more importantly, that its functionality remains limited with respect to the large variations that appear to exist in the PSC.  Where a JOA is rather consistent worldwide, PSC specifics vary tremendously between countries and companies within the same country.  Some companies have opted for custom solutions rather than implement standard SAP PSC or working with SAP on further enhancements.  This ofcourse is not optimal for those looking to automate their PSC nor is it beneficial for the expansion of the use of the module worldwide.

Given our expertise in PSC business requirements and the capability of the module, Critical Consulting would be able to quickly analyse your requirements and perform a gap analysis to the standard PSC module.  In some cases, full functionality may already exist; but where further enhancements are required, we have in-house expertise for developing functional specifications for any outstanding gaps identified.  Ultimately, integrating financials and JVA with PSC improves data integrity and ensures further automation allowing accelerated periodic close while enabling more time for verification of data.