Downstream Oil And Gas CFOs: A Change In The Financial Landscape

Craig Kindleman and David Shimbo

As a CFO of a downstream oil and gas organization, you’re familiar with the term “gravel,” which means going out into the field to see how the real world works.

In that vein, we recently had an experience where a customer’s maintenance orders were marked on pieces of paper. Then, the workers would come in and stack them in a corner.

But the problem was that they didn’t have the time or staff to enter those paper orders back into the system. So there was no record that the maintenance orders had actually been completed – or even partially completed.

Sadly, this is not an uncommon state of affairs, as many oil and gas companies have antiquated, paper-based systems. Not surprisingly, it is damaging their profitability.

The bimodal theory

The Gartner Group has a phrase called the bimodal theory. Mode one is a linear approach to change, emphasizing predictability, accuracy, reliability, and stability. In other words, you don’t want to do any customization or differentiation. Just stick with the standards.

Mode two is a nonlinear approach that involves learning through iteration, emphasizing agility and speed, and, above all, the ability to manage uncertainty. That’s your competitive advantage, your secret sauce. You want to use this to become a better company.

The role of the downstream CFO

Downstream CFOs are seeing a change in the financial landscape. They’re seeing that the oil and gas value stream not only consists of refining, marketing, and secondary distribution – but also the end customer. All these processes need to fall into place before you can go any further.

The digital CFO needs to continually improve operations and know what the operating cost is by unit inside the refinery. Also, they need to know which refinery and unit are most efficient across the top KPIs and which refined product is growing margins the fastest.

Accounting and financial capability road map

CFOs are positioned to play a key role in the success of their companies – as long as they have the right tools. We’ve worked with many businesses in the oil and gas industry, and the following road map to organizational change is being adopted as best practices.

  1. You can use centralized financial reporting from systems to enable real-time transaction-level visibility and soft-close capabilities. This helps with rapid financial integration of future mergers and acquisitions. And it enables real-time transaction-level visibility in near real-time and soft-close capabilities.
  1. By digitizing core finance processes, you can drive updates to a single journal, general ledger, cost accounting, and profit center accounting. This approach enables increased hydrocarbon margin transparency, intercompany transactions and reconciliations, and granular visibility into all accounting transactions.
  1. You can use AP invoice-processing costs related to invoice routing, exception handling, and invoice management. And you can use credit management, disputes and collections management, and self-billing. You can also integrate commodity transactions to reduce the need for daily bulk-data transfers to third-party solutions, provide tighter management and enforcement of credit limits, and automate cash application.
  1. You can use corporate compliance controls (GRC) to integrate and manage IT operations that are subject to regulation. And you can provide continuous compliance of segregation of duties (SOD) to ensure oversight and reduce errors.
  1. By leveraging treasury and risk management procedures, you can manage every activity associated with cash, payments, liquidity, risk, and compliance. And you can help finance gain more control over payment batches, foreign exchange, and commodity exposures.

Digitizing operations improves KPIs

Top performers in the industry are achieving impressive stats such as:

  • Sales revenue up 4.5%–5%: Higher achievement of sales revenue targets with real-time access for finance to pipeline and sales data
  • Revenue growth 20%–23%: Where finance leadership spends more than two-thirds of its time with executive management on key risks and decision support activity
  • Costs down 30%–36%: Where cost and profitability reports are generated to the level of product, channel, and customer
  • Profitability up 30%–38%: Where the profitability of the product, channel, and customer are regularly reviewed to develop strategies for improvement
  • Margins up 20%–22%: Where finance leadership has access to a cockpit/dashboard that provides a timely and integrated view into a predefined set of key financial and operational metrics
  • Revenue per employee – 2x: Where ownership and accountability has been assigned for all key metrics to ensure that mitigating actions are executed promptly once a metric falls out of the acceptable range

Source: SAP Performance Benchmarking

Into the cloud

Last year, we were approached by a venture capital company that bought an antiquated 1960’s era oil and gas asset at a refinery that wasn’t working. It was covered with blue tarps and had been so for about eight years.

They were going to raise about $500 million to get it back up and running and process crude oil through it. They told us, “We need to do accounts payable, accounts receivable, and paychecks for workers. And then we’ll we have to maintain the refinery once we get it started, so we’ll need a maintenance system.” It was a simple request that led to a conversation about cloud.

They asked us how long going into the cloud would take – half a year? We said it would take six weeks to get up and running, and then two months to configure the financials. They had heard that these systems take months or even years. And we said, no, technology is very quick today. We are able to create it in the cloud just like signing up for a Facebook account.

Four months later, they were successful. We were able to move them from no PCs and no users to a fully robust cloud platform that would last a very long time.

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Craig Kindleman

About Craig Kindleman

Craig Kindleman is a senior director in the Oil and Gas Industry business unit at SAP. He advises customer executive teams and leads priority shareholder value initiatives for the oil and gas industry at SAP. Craig has acquired vast knowledge in operations, asset management, marketing, and technology – all based on his experience designing global initiatives for multinational businesses and specializing in high-impact projects.

David Shimbo

About David Shimbo

David Shimbo is responsible for business development and value creation for energy and natural resources accounts at SAP. With a focus on upstream, midstream, and downstream oil companies and oilfield service businesses, he has deep expertise with upstream financials, asset management, maintenance, operational analytics, business case modeling, and benefits quantification. David has oil and gas industry experience with Exxon, BP, and Halliburton and technology experience with IBM, Oracle, and two startups. David is determined to make all SAP projects related to increasing productivity and reducing operating costs.