Outsourcing in the Oil and Gas Industry

Opportune’s oil and gas outsourcing services provide our upstream, midstream and first purchaser clients with improved efficiency in the daily business of transactional processes and reporting, allowing them to focus on operations, strategic planning and business plan execution. With a skilled right-sized staff using high-quality technology, our oil and gas back-office lowers costs and allows for instant scalability, giving our clients the ability to react as their business needs change. In a time when efficiencies are a must, outsourcing is a perfect solution that provides reliability and continuity.

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Today’s oil and gas industry continues to struggle in finding a complicated balance between rising global demand, diminishing known resources, and in maintaining manageable distribution and operating costs. While mergers and consolidation continue, oil and gas management are determining other approaches to recover their base lines. One particular measure is to include business process outsourcing (BPO) in their operational mix. Much of this reorientation has been caused by operational processes becoming progressively more complicated and more costly in terms of managing a variety of business functions; hence businesses are handing parts of their core work, such as engineering services apart from finance and accounting, to outside service providers.

 

Current Offshoring Trends in the Oil and Gas Industry

 

The offshoring trends in the industry today are varied but the top three trends are as follows:

• IT offshoring of infrastructure related components.

• Best-shoring or alternative offshoring, of applications related to corporate systems. This trend is an imperative cost cutting tool for businesses competing on a global scale. Running applications from a single network, versus multiple networks in numerous locations, slashes costs and enables streamlining of processes and methodologies.

• Oil and gas companies are beginning to investigate the benefits of human resources offshoring. In addition to reducing costs, areas such as compensation, benefits management, recruitment and employee retention may be better handled by companies who are experts in the field.

 

Advantages of offshoring. Why outsource?

A driving force for many oil and gas companies in offshoring finance and accounting functions is cost reduction. Due to tightening margins, companies are under greater stress to slash expenditures. 30- 50% reductions in costs (related to these specific business functions) have been reported by companies that have calculated their offshoring gains; the reductions are mainly reported in wide- ranging general and administrative costs. Furthermore, offshoring diminishes headcount and related costs such as salaries, benefits and incurred office space expenses. Simplifying, standardizing, centralizing and automating finance processes through the use of best practices and advanced technology also reduces costs and increases efficiencies. Offshoring companies offer benefits of economies of scale to clients by offering similar services to a broad range of customers. Cost reduction, however, is just one of the motivating factors behind finance and accounting BPO. A number of other premeditated advantages are also attracting oil and gas corporations to offshoring.

Stronger focus on core competencies

Management needs to focus on strategic decision-making, but, routine low-level tasks involved in running their operation can be all consuming. Offshoring routine tasks such as joint interest billings, payables, revenue distributions and receivables, ensure more time, energy and efforts are available to value-add projects such as analysis, strategic planning, forecasting and budgeting. Outdated business processes can be reevaluated and re-engineered by specialists, whereas these updates (if done internally or in-house) may otherwise be delayed due to a lack time, focus and objectivity. This is especially relevant to the oil and outsourcing industry where considerable time is required in the strategic exploration initiatives.

 

 

 

Improved regulatory conformity and compliance

Complex business planning and strict government laws inflict a massive organizational and compliance burden on oil and gas companies. Through offshoring, companies gain access to specialists who have may have more exhaustive knowledge of complex tax systems,  reporting policies and industry standards. Regular audits by these specialists also ensure third-party verification and that financial records are compliant with regulatory requirements. Offshoring companies also are able to provide access to well defined processes and technology solutions designed to improve the precision, timeliness, dependability and lucidity of financial data and analysis at affordable costs. Though such technology implementation such as disaster recovery solutions can be implemented internally by oil and gas companies, allowing the outsourced provider/partner to fulfill these tasks can further reduce operating costs and allow them to maintain a higher focus on core competencies.

Access to a larger talent pool and new technologies

Diminishing talent pools within their base of operations is a key challenge faced by many oil and gas industry players. Staff turnover, attrition and downsizing, together with an aging labor force, has resulted in a scarcity of trained personnel. Offshoring, however, overcomes these challenges by offering the proficiency, methodologies, tools and solutions needed by an upstream company's unique and evolving requirements – and is able to provide this necessary labor pool at a reduced cost envelope.

Other advantages

• Domain excellence – subject-matter expertise, controls and compliance, and new technology implementations.

• Process expertise – provider competence to implement global and industry standards and best practices.

• Labor cost reduction and increased productivity – offering Best Shore delivery through operating metrics, service-level agreements and corporate governance.

 

 

• Technology implementation – including best of breed, proprietary and commercial applications, effective architecture, and world-class alliance partners. The benefits of a virtual infrastructure  can also be considered a direct benefit.

• Scale and leverage – usage of global network for delivering services, capacity management and reusable solutions; especially for service providers with domain expertise across geographic regions.

• Improved monitoring and reporting capabilities.

Below is a listing of current business functions that are likely to be outsourced by oil and gas companies.

 

Business Function

Service Process

Higher Value Services

 

 

 

Engineering and Design

Property evaluation & acquisition

Divestitures

Drilling prospects and engineering reserve reports

Field study exploration

Waterflood feasibility and field performance issues

Process, mechanical, electrical, structural, civil and control engineering services

 

 

 

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Application/Software deployment and management

Hardware deployment and management

IT consulting services

IT/IS training

Network and workstation management

System integration

System infrastructure provision

System related support and management

 

 

 

Finance and Accounting

 

Accounts receivable/payable

Revenue accounting

Tax related services

Finance and treasury

Land record & property related

Financial reporting

Due diligence & auditing

Electronic document imaging

Lower Value Services

 

 

Human Resources

Payroll and tax related

Compensation and benefits

Health and pension administration

Administration and claims processing related to employee insurance, retirement, education and other employee related benefits

Training and related services

 

 

Back office and shared services

Document management

Remote document process and storage

Document automation and related services

Web-based document management

 

 

 

Making Offshoring Work

 

Effectively transitioning a business area such as finance and accounting over to an third party service provider requires careful deliberation, planning and execution. To garner the complete value of offshoring, upstream companies must consider some fundamental steps outlined below:

 

Step 1: Calculating the cost

An in-depth expenditure study should be carried out to ensure the cost of offshoring does not exceed the anticipated value. Three cost scenarios should be evaluated:

• The current cost of managing back-office functions.

• The cost of adapting in-house processes with best industry standards, practices and technology.

• The cost of back-office offshoring. Baseline in-house expenses must include tangible costs like staff, infrastructure and IT applications, as well as intangible expenses of lost focus.

 

Step 2: Building consensus

Offshoring concerns every level of a company from top executives to managers and employees. Major changes caused by offshoring may cause an initial negative reaction. It is thus critical for the success of an offshoring strategy to bring consensus in all levels of the organization. A methodical cost analysis will address the concerns of executives while presenting offshoring as a standard industry practice to the executive level, not as something innovative will ease concerns. Front-line managers who fear a loss of control should be convinced that offshoring actually ensures enhanced control. Instead of investing valuable time in controlling day-to-day processes and employees, they are freed to focus completely on controlling outcomes and the strategic direction of their organizations.

Step 3: Selecting the right partner

Extensive due diligence can enable the company to choose the right partner. Below is list of key criteria to consider in selecting a candidate.

•            Client references - Speak to at least three clients with similar needs and obtain exhaustive and candid feedback.

•           Experience and knowledge - Assess an outsourcer's skill and expertise.

•           Service levels - Evaluating customer service is the single most important criteria.

•           Infrastructure - Visiting the prospective provider's facilities.

•         Financial health - The ideal candidate should have a track record of success and development, a strong cash flow, hefty capital reserves, low debt and a varied client base.

Step 4: Negotiating contract

Essentially the contract must reflect harmony on all business and operations related issues. Most importantly, those related to extent of services, performance and costing. Performance incentives and penalties are also a critical component. The contract should plainly specify penalties for failing to meet service level requirements, as well as monetary rewards for exceeding expectations. In addition, a stipulation allowing each party to terminate the agreement in a worst-case scenario is desirable.

Step 5: Ensuring continued value

Managing the offshoring relationship by applying contractual metrics is the wisest approach to keeping the relationship on track. Quantitative measures should be used to evaluate performance, and qualitative input from in-house clientele. Appointing a single point of contact is an efficient way to ensure that the needs of both the client and the outsourcer are met on a regular basis.

 

Conclusion

 

The emphasis to drive down cost expenditures remains unabated in the upstream oil and gas industry. Companies that have discovered offshoring have not only found an efficient tool for maximizing effectiveness and lowering costs but have also enjoyed other resulting operational benefits. Through offshoring, oil and gas companies are acquiring a wealth of other strategic rewards that address their intricate and developing business challenges. With a well-planned offshoring strategy, these companies should attain the results they require to stay competitive in a cutthroat market. Oil and gas companies must focus largely on their core business and less on their back offices – a predicament than can be effectively addressed through business process offshoring.

As previously mentioned, today’s oil and gas company must strive to gain access to accessible reserves and find novel means to maximize production levels. Hence, organizations need to maximize and better utilize existing resources to assist them in capturing, analyzing, and applying strategic business decisions. Oil and gas companies can utilize the offshoring process to take advantage of domain expertise, gain access to modern technology implementations and industry- accepted best practice standards – as normally provided by offshoring service providers.

Offshoring can also help oil and gas companies create a fully global infrastructure with the purpose of developing an optimal system of operations regardless of location, and provide them lucidity in their supply chain. It can thus be inferred that if the oil and gas industry aims to minimize operational costs and maximize output then offshoring selected services to well-chosen offshoring destinations presents itself as a viable and effective solution.

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