Bring in efficiency in O&G upstream production allocation using blockchain-based systems
Blog: Capgemini CTO Blog
The oil and gas production allocation process is a mostly manual one that uses spreadsheets – using mathematics and modelling to calculate the production capacity of each well in a network including a small number of fiscal meters at key points of the production network. These fiscal meters, also called custody transfer points, are where ownership is transferred between commercial entities. Fiscal meters are maintained with high accuracy and audited regularly by joint venture partners and government regulators. All these are error prone and can lead to manipulation, misrepresentation of data, etc.
While production allocation is a highly manual process today, operators are increasingly moving away from these proprietary manual tools to automated enterprise-strength solutions that provide repeatable, auditable, and accurate allocation of production. This is where blockchain can help in the oil and gas industry. Its many applications include:
- Potential of blockchain and smart contracts for processes, such as AFE (authorization for expenditure), research, production, sales, trading, asset management, etc.; publicly verifiable accountability to customers and end users (permissionless)
- Blockchain-based ownership, production and revenue distribution process in oil E&P (exploration and production)
- Asset management minimizes risks, reduces costs, and ensures long term availability
- Effective hydrocarbon accounting using blockchain-enabled CTRM/ETRM
- Lower transaction costs – removing the middleman reduces cost.
The O&G industry is also looking for opportunities to increase efficiency, improve security, and reduce environmental impact while refining the customer experience.
Production allocation – Blockchain can improve O&G production allocation by verifying contractual allocation, supplying chain tracking, increasing automation, and improving revenue distribution. Blockchain technology would be helpful in preventing the age-old problem of prior period adjustment (PPA). The extra layer of traceability could reduce manipulation that will significantly affect its production and revenue accounting.
In the production allocation area, blockchain can be used for reconciliation, performance-based contracts, land rights, and supply chain — as well as more specific examples within each.
Capgemini can help O&G companies by using blockchain for the seamless integration of:
- Production (volume allocation)
- Contractual allocation (allocation of oil wells to the contracts)
- Valuation (price and tax calculations).
Asset management – Blockchain can be used in asset management, tracking well heads, platform availability, and related mean time between failure.
Capgemini works with the asset owners, vendors, suppliers, operators, and O&G companies to tie up all loose ends with the help of blockchain:
- The system has immutable records right from installation, operations, repair & replace
- The solution tracks the resources with help of asset serial numbers and trackability throughout the lifecycle
- With IoT integration, the solution can auto trigger work orders and link with costs, parts in real time.
Hydrocarbon accounting – In energy trading, there are multiple parties involved in operations from upstream to downstream, including the energy producer, shipper, supplier, regulator, etc. So, there is a lack of trust between these stakeholders, lack of visibility or data and settlement delays.
Capgemini works with all the stakeholders with joint and end-to-end terms and conditions:
- Build the SMART contract
- KYC of all stakeholders
- Track the trade from entry through settlement to reconciliation, reporting, etc. with traceability
- Tie up the logistics partners for tracking the movement and storing using identification numbers.
Blockchain’s smart contracts can help in AFE tracking, management and making payments smooth and seamless by reducing barriers such as requiring multiple transactions, reports, transmission, verifications, etc. In the ownership and production valuation sector, smart contracts could deactivate/blacklist well production, allocation with outstanding payments or settlements.
As blockchain technology drives more opportunities and decreases individual costs for mobility, traditional O&G ownerships benefit. Production allocation efficiency is expected to increase by 25% in short term and up to 50% in the medium and long term. Moreover, the overall PPA will come down to 10% of present levels. With optimized ownership, valuation, and allocation the production and revenue distribution will be much efficient and productive.
Capgemini has ready-to-use solutions that can be deployed seamlessly. Please get it in touch me @ vijay.karna@capgemini.com or Biplab Biswas @ biplab.biswas@capgemini.com to know more about our offerings and capabilities.
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