In this blog I plan to share some of my experience working with few Oil & Gas companies and identify what have been their key needs when it comes to planning solutions. I will also highlight some examples of customers who have used SAP Business Planning & Consolidations in the Oil & Gas industry.
Lets examine what are the key planning process and needs of Oil & Gas company. Before that for those who do not know this industry that well, at a high level Oil companies can be categorized into the following :
Upstream – The companies that drill and get crude oil. These companies are often found in countries where there is abundance of Oil wealth… OPEC countries, Texas in US etc
Downstream – The companies that procure oil from upstream companies, refine the oil to produce oil and gas, and then market the oil through distribution channels and retail outlets.
So as you can see from the above brief intro, the way business planning needs to be done could be totally different for Upstream and Downstream companies, though there are some common needs, which I will try to highlight.
Important planning use cases/process for Oil & Gas companies:
Capex Planning – The most significant of the time and value O&G companies spend their time is on Capital Expenditure (capex) planning as they make significant capex spends year on year, with estimate of exceeding $1 trillion capex spends in 2012. You may likely want to buy a report on the 2013 spends by Upstream companies. As you see that for upstream companies, there is significant pressure to manage this large outlay. Same is the case with Downstream, as they have setup large refineries, or upgrade their refineries with latest technology. Often the capex planning takes the most focus in these companies as well. This is where they look for a robust planning solution that can help manage their capex spends, prioritization of capex and the whole process of managing the capex approvals. The Oil companies also look for great visbility what is committed and spent. With SAP’s planning solutions, Oil companies are able not only manage their pre-approval process, but they are able to effectively monitor the post approval commitment/visibility as the numbers can be deeply interlinked to SAP ERP system. Here is a case study of how one of the O&G customer uses SAP BPC for capex planning and beyond.
Strategic Long Range Planning – Oil & Gas companies are long term players, their decisions are often more relevant for 2-3 years down the line and they have to really plan ahead. So essentially they need to come up with very structured, long range planning exercise that can forecast reliably over a longer time horizon. Many of our Oil & Gas customers use SAP BPC solution as great way to create these 5-10 years long range plans. They often create 2 or 3 scenarios that can be changed and submitted for review. This becomes a very good detailed record, in financial times, on how their business is going over the longer time horizon, and often identifies investment avenues, growth opportunities and capex spending needs. Long range plans are equally important for both upstream and downstream companies.
Budgeting and monitoring – Oil & Gas companies, especially downstream ones are widely distributed and large enterprises. So often budgeting and monitoring budgetary spends is a comprehensive activity these companies indulge in. These companies often need significant software solutions that can help them cover this vastly distributed budgeting process – to manage their revenue targets, expense budgets, headcount budgets, SG&A (especially for marketing arm of downstream) etc. Several Oil & Gas customers rely on SAP BPC solutions to handle these budgeting across multiple companies, countries. They also cut off several laborious manual tasks by using SAP BPC. One of our customers headquartered in Germany, have significantly benefited by automating the budgeting process across their company.
Driver based and Risk Adjusted Planning - As Oil & Gas is a key natural resource and is highly regulated, its important that plans are modeled based on drivers. For example, in case of downstream companies, crude oil prices and exchange rates significantly affect the top line and bottom line. These also fluctuate enormously. So its important that plans are interlinked with these drivers and risk element is factored into the plans. With SAP BPC, Oil & Gas customers can create a truly driver based planning model that can help creating plans that are derived based on changing this important drivers. With more innovations coming in the roadmap with BPC on HANA, this could be further improved. Look for more information on this in near future.
Link Financial Planning to Operation Planning – Oil & Gas companies have lot of operational planning activities. In case of Upstream, they get into Acquisition, Exploration, Production and Abandonment planning. One of the key element in the business planning process is to link these operational planning to financial planning, in order to represent them in financial terms. Integrated Business Planning (aligning cross functional planning) is a key requirement for Oil & Gas companies. In case Downstream, Refinery planning is a pivotal with primary goal of optimizing profit by most efficiencies and scheduling. Often the output product mix have to be estimated or forecasted reliably. Product mix has a huge bearing on the profitability as change is mix could result in totally different profitability. Given Oil & Gas is a supply driven market, whatever gets produced get sold, and therefore its important that the right mixes are produced to optimize profitability. Some times there are regulatory requirements that forces Oil & Gas companies produce not just on profitability metrics. As you can see while operation planning get done, its important to integrate that to financial plan, so that Operational Managers have financial visibility. SAP BPC can integrate to operational planning and transaction systems very effectively to drive Integrated Business Planning.
Share your experiences working with Oil & Gas companies as well….