Overhauling Production Revenue Accounting for the Future

Two guys recording a podcast interview

Overhauling Production Revenue Accounting for the Future

As SAP migrates to the cloud, it is shifting industry solutions like PRA to third parties, for a better customer experience. Here’s the backstory.


SAP’s latest S/4 version, which is fully cloud-enabled, is being reimagined as a platform that allows for tight third-party integration. Capabilities that were part of SAP’s industry verticals will then be migrated to third-party developers to create a better customer experience. One of the modules is Production Revenue & Accounting (PRA), which has been a long established and widely used capability in Oil and Gas.

In this interview, I’m in conversation with Senthil Kumar, who is the CEO of a company called Sierra Digital, one of the first third-party developers in the SAP ecosystem, and the developer of the next generation PRA solution. The interview has been edited for brevity and clarity. 

Geoffrey: You have a very interesting background; if this if this was a Marvel comic book, what’s your “origin story”?

Senthil: I’ve been in this industry for the last 30 years. I started in SAP, and then started moving towards energy industry opportunities, such as the Public Sector and Oil and Gas work. After working for 20-30 years in that space, you can understand the customers’ pain points, and how to integrate solutions. I then started up my own business to provide something to bridge the gap between technology and the business. That is what my forte is, bridging that gap. I was trying to put together “one plus one equals three,” so I tried to come out with a better solution, a better user experience, while reducing costs. That direction put us in the trajectory of a lot of innovations for the last four or five years, including SAP’s S/4 transition. We picked up the PRA and Joint Venture (JV) processes and started building applications using SAP’s Business Technology Platform and the cloud.

Geoffrey: You said that you had a background in the Public Sector as well as Oil and Gas. How are those two related?  Is it common foundational technology while the verticals are different, or is there some connection between those two?

Senthil: Oil and Gas and the Public Sector are very risk averse. Decision-making processes can take anywhere between two to four years—much longer than a digital strategy or cloud strategy. The mindset also has a similar process flow. Those are some of the common things which I have seen in my experience.

Geoffrey: Let’s turn to the question of PRA and JV Accounting. Why is this domain area such a thorny area for Oil and Gas?

Senthil: The systems for PRA or JVA aren’t very user-friendly, because the process is very, very complex. You have to go through 17 or 18 transactions to even complete one JRA or JVA order. Finding the resources even to work on the PRA and JVA is quite challenging because the process is so difficult for the users to understand.

Geoffrey: How specific is revenue accounting to different jurisdictions?

Senthil: It is entirely based on where your wells are. Compliance keeps completely changing based on each city or county in the state. Your reporting strategy reflects the variability by jurisdiction. The process isn’t stable, it keeps changing, sometimes as frequently as every 90 days, so you have to make sure that you’re under compliance every time you’re developing a well.

Geoffrey: Can you describe what SAP is doing that creates the need and the opportunity to reimagine the user experience and PRA?

Senthil: We call it a RISE Cloud Transformation or S/4 RISE Cloud crisis, trying to move the customer from on-premise to the cloud. SAP’s vision is to keep the SAP core clean. In the past, you did all your customization in Enterprise Central Component (ECC), within your existing SAP system. But every upgrade is going to be a challenge because there is a lot of customization and integration that has to be accounted for and migrated from one version of SAP to the next. If you don’t keep up with your patches or you don’t do your upgrades for one year or two years, you end up having eventually to do a brand-new implementation.

SAP wanted the customer to keep the SAP core clean, and any customizations customers want to build will be the applications in the cloud, which they call the Business Technology Platform in SAP. Partners like us, involved with the customer or with SAP, build those applications. A common application might be used for many customers; some might be very specific to the customer’s particular vertical. But the good thing is that application is completely separated from your core. When you’re doing an upgrade, your core is always going to be clean. Only your application will need to be tested, because you’re only connecting the relevant data points which you need for your application to run in the cloud instead of all the data from your core. That changes the way transformation is going to work in a big way, and it is going to make the customer’s life easier.

Geoffrey: For this to work, SAP is imagining these applications in a kind of app store model. What is SAP’s role here?

Senthil: Sierra’s role is to build and maintain applications like PRA in Oil and Gas. Then any user experience, customer experience, or any specific requirements are going to be pushed on the cloud as an application. The two get connected through your API, which is bringing your data back and forth from the cloud to your on-premise systems. Those APIs are created by SAP and interact with the application. If any data layer changes, if any upgrade changes, or any kind of data points on your back end system change, that automatically gets into your API. That’s what SAP is going to be doing. You don’t have to keep changing your front-end and user interfaces every time either. You can upgrade afterwards, and any patches go automatically to your API. That is what SAP controls. SAP supports the entire API and the platform.

Geoffrey: You’ve been building and working with PRA and JV matters in Oil and Gas for 15 years, as you’ve pointed out. How does the user interface change? What is it that you’re going to be building at the front?

Senthil: The long story short is definitely a better user experience. What customers are going through with 16 or 17 clicks is going to be reduced to two or three clicks.

For example, we’re building an Ownership Portal on the B2B side between the landowners, JV owners and the customer, which are the super majors. Right now, landowners experience very disjointed consent letters, processes or relays, no place to answer basic landowner questions. On the regulatory side, parties all wait on signature and approval processes, which can delay the process of new well permits because of the volume of signatures required. Before you can build any new wells, you still need to follow manual communication and document processing with lots of e-mails and paper documents. It’s even a very complicated approval process in terms of paying people.

Once the well starts operating, there are a lot of manual process to pay the landowners. There is also a risk of security issues involved with mailing information multiple times per year. There is no secure site for the landowners to make any changes online.

Geoffrey: With very different kinds of landowners, what is your goal with the user experience?

Senthil:. We want to make the user experience as simplified as possible. That’s where our customer experience team comes in. When landowners open up the portal, it resembles Amazon. You don’t have to ask questions; it has a very simplified interface, but you can do anything and everything you need. The portal includes a lot of automation, which has benefits outside of the user experience side. From the regulatory perspective, automation improves the process, reduces the regulatory fines because it lowers the risk of lawsuits. It’s not just a customer experience benefit, but you gain tremendous business value. It lowers production delay, prevents loss of production, improves license to operate, simplifies the accrual process for paying. It improves workflow process, reduces capital expenditures, optimizes your payment process, and improves the process to file new well permits. There are a lot business advantages you also get. It works from both sides of the job. One is the business advantages you get, plus the user experience for the customers who are investing on your property. Or, if there is a JV, they are also having the better experience, too.

Geoffrey: What do your customers report as the upside to this approach?

Senthil: There is a lot of cost reduction because the manual processes are avoided. Your digital transformation through your workflow process and user adoption come into the picture more on the digital side. It’s not always easy to put direct numbers to it, but when the customer sees everything together, then they can really understand the value added. When you talk about anything on cloud or digital transformation, generally people will take a step back and they don’t immediately welcome it. But in this case, the customers are very interested. When you talk to land people, they immediately embrace these kinds of solutions.

Geoffrey: Is there an early adopter advantage?

Senthil: In our experience, whoever embraces earlier are going to be the big beneficiaries. A digital journey does not happen overnight. It can take five to seven years because you have to have your core applications arranged in a proper manner, you need to have the big data platforms, and you need to have so many things aligned to make sure the digital transformation provides good returns. The sooner you start, the better. Any digital strategy is built on different technologies, and the next step is autonomous remote operations, robotics. If you do automation right, there is a 20% reduction in the drilling and completion costs, in inspection and maintenance costs. Up to 20% lower cost across all areas. That’s what the studies say. We are seeing that the customers are benefiting. Whoever has embraced or is starting the journey, they want to see that benefit in the next couple of years.

Geoffrey: Are there other jurisdictions out in the world that have flagged or that you’re aware of who are also experiencing these same kinds of complexities as in the Oil and Gas Accounting world?

Senthil: I think the Oil and Gas industry is having that challenge everywhere. I speak to many customers from the super majors, to the tier-twos and tier-threes, and everybody feels the same. They are all looking for solutions.

Geoffrey: What is the feedback that customers give you when they get to see a brand new, better user experience? What is their reaction?

Senthil: They’re very surprised. “Oh, can it be done this way? This much easier? Because I was cracking my head against this thing last week for, like, four hours. Now, in three minutes, you’re showing me from Step A to B to C to D.” There may be a few who struggle with change, and they challenge it. But most value it, because they have lived with the same awkward process and technology for the last 20 years. They are ready to change.

Geoffrey: Where do you see this going? If you play this out, say five years from now, after the S/4 rollout, what do you forecast out in the future?

Senthil: From now to the next three to four years, we are going to be building numerous applications. We will call it an energy portal, where people can come and download the applications relevant to their industry, or the solutions they need or would like. We have one for the PRA and JV process, but we want to do the entire supply chain process, we want to do HR, and we want to do finance. We have so many different ideas for upstream, midstream, and downstream. Right now, we are focusing more on the upstream side, but we also have another team working on some of the applications for downstream. We are also starting discussions on emergency asset management for customers in midstream.

Geoffrey: Where is the industry at in addressing digital transformation?

Senthil: Companies understand that they have to start the journey. Some have started; some are planning to start by later this year or next year. To establish a digital services platform can take several years because you have to have a certain line of things to be done before you can stand up automation, advanced analytics, predictive maintenance, 3d printing, wearables, blockchain, or smart contracts. That’s not tomorrow. The foundations have been started by a couple of super majors. Tier-two and tier-three are still on the sidelines; they’re thinking about it. Even some of the other super majors are planning to start that foundation. It’s likely a five-to-ten-year roadmap.

Conclusions

For more information on Sierra Digital and the future of Oil and Gas vertical solutions like PRA and JVA in SAP’s S/4 world, please visit sierradigitalinc.com/enerbridge.


Check out my latest book, ‘Carbon, Capital, and the Cloud: A Playbook for Digital Oil and Gas’, available on Amazon and other on-line bookshops.

You might also like my first book, Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, also available on Amazon.

Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course on Udemy.

Mobile: ☎️ +1(587)830-6900
email: 📧 geoff@geoffreycann.com
website: 🖥 geoffreycann.com
LinkedIn: 🔵 www.linkedin.com/in/training-digital-oil-gas

 

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