Optimizing Oil and Gas Software
Oil and gas software is an essential component for businesses in the energy industry. It allows them respond to problems more quickly, review historical data more easily and send reports to managers automatically.
Oil and gas software also allows enables the implementation of a formal process for tracking production as opposed to the collection of spreadsheets that has traditionally been used in this industry.
However, poor oil and gas software can also create problems, which may be classified into the areas of assets, production and revenue.
Oil and gas software can cause a failure to pay out on a well interest. This can occur when the software calculates the royalty improperly, causing the balance to fall below the minimum pay requirement for that account.
Poor software can also cause a business to over bid or under bid on an asset by miscalculating the expected value of that asset. The primary factor that determines an asset’s value is the current price of crude oil or natural gas, which can fluctuate greatly over time.
Political factors can also have a significant effect on asset valuation, especially in areas characterized by civil unrest. Technological improvements can increase an asset’s value in the future by reducing the recovery costs.
Software can also create problems with production such as inaccurate estimates of production and reduction in actual production. These problems include double-counting the output of one or more wells, causing your company’s total production to appear higher than it actually is.
Software can also cause your company to drill a hole in a poor location that costs more to operate than it produces. The incorrect allocation of production is another problem that can be caused by poor software.
Facilities with multiple wells must allocate resources to each well, which is generally based on each well’s production. Software that reports production incorrectly can result in a sub-optimal allocation of resources.
The loss of a lease is one of the most significant problems for an oil and gas company that relates to revenue. This problem typically occurs when a company is unable to successfully market a lease or sustain its production for an extended period of time.
The failure to receive revenue from all well interests can also be a major problem affecting a company’s revenue. Well interests include basic royalties that are paid to the mineral rights owner and overriding royalty interests that are retained by third parties such as geologists.
Well interests include working interests that a company receives after royalties in exchange for exploring, developing and operating the property. Bad software can also reduce a company’s revenue by inaccurately estimating the reserves remaining in a particular well.
For more, read this post on how oil and gas software can improve decision making and forecasting.