KMG EP-Catering (Investigation Production KazMunaiGas) + SAS of Activity Based Management

In 2011 large projects in JSC Razvedka Dobycha KazMunaiGas are complete. Among them – implementation of separate accounting of income, costs and assets based on SAS of Activity Based Management and also start of a budgeting system based on SAS Financial Management.

Before stopping the choice on this solution preliminary work on preparation and holding an open competition was done. A number of the known vendors, including IBM (with the product Cognos), Oracle (Hyperion) and SAP (Business Objects), it was offered to them to construct demonstration model of separate accounting for our enterprise on the example of one real oil and gas production department (NGDU) operating several dozens of wells participated in it. Additional own analyses of vendors and their products were carried out, but at the same time the customer had no opportunity to get acquainted with already implemented similar solutions at the enterprises of the oil and gas industry in the CIS countries.

As the general contractor in this project the representative office of SAS in the CIS countries acted, the Kazakhstan company ERP Service was engaged in completion of the SAP ERP system, the TBD additional tuning was performed by KazInfoSystems. The Kazakhstan company ISTP (development of model) and the Russian firm 'Irbicon' (design of a subsystem of the reporting) participated in deployment of solutions of SAS. From each of these companies for participation in the project five-six specialists were delegated. In KazMunaiGas Exploration Production the working group including heads and the staff of structural divisions also with a total number of five-six people acted.

KazMunaiGas gains a detailed impression about profitability of each well Separate accounting of income, costs and assets based on the solution of SAS Activity Based Management in the largest oil-extracting company of Kazakhstan "Investigation Production KazMunaiGas" (RD KMG).

The KazMunaiGas Exploration Production company is a part of KazMunaiGas holding and is the player, largest in Kazakhstan, in the market of exploration and production of hydrocarbons. The operational well stock of the enterprise contains more than 7000 wells. The volume of production is more than 12 million tons of oil a year that is equivalent to a net annual income about 1.5 bln. dollars at the consolidated level. 20 thousand are engaged at the main production human. Since 2006 stocks of KazMunaiGas Exploration Production are quoted on the London stock exchange.

Quickly to receive reports on efficiency of the existing business processes and it is rational to use the available production capacities and resources, the RD KazMunaiGas company implemented an implementation project of the analytical solution of SAS of Activity Based Management.

Tasks

The internal system of the reporting existing in RD KMG (accounting, tax, statistical) completely conformed to all requirements of the legislation of Kazakhstan, at the same time reports had the general character. "For us it was important to see efficiency of use of each separate asset type, to understand what profit is made by each specific well as each geological and technical action is reflected in indicators of production and cost value of oil", - Berik Turmaganbetov, the director of the department of budgeting and the economic analysis of RD KMG tells about the tasks facing the company.

Solution

Having considered solutions about ten companies, RD KMG made a choice for benefit of SAS of Activity Based Management (SAS ABM). "Very flexible, multifunction, convenient system in use with almost unlimited opportunities of visualization was required for us. The SAS ABM system completely complies with technical requirements of RD KMG and provides the complete solution of an assigned task", - Berik Turmaganbetov explains the choice reason for benefit of the solution of SAS.

The selected solution SAS ABM provides a full integration and synchronization from used in RD KMG Erpsistemoy constructed based on SAP R/3 that also was one of key requirements. Besides, experience of successful implementations of SAS ABM both in the CIS, and in the territory of Kazakhstan was of great importance.

Project Progress

In total – from the idea of implementation before acceptance of a system in commercial operation – the project took about three years. The supplier of the solution was during this time selected, the technique of separate accounting of income, costs and assets on the basis of an ABC method (Activity Based Costing) was developed, the technical specifications are worked out, the pilot project is implemented, and after a replication stage the decision was made in commercial operation.

The model of separate accounting requires use of large volume of data from different sources. In case of RD KMG the main sources of data became the ERP system (information on revenue, resources, operating and capital expenditure with a binding to places of emergence of costs) and the Territorial Databank (TD) where all geological field information contains: about production on each well, the idle times which are carried out by the GTE and so forth. Also small part of information is entered directly by means of collecting forms – employment of personnel on businessprotsessa, motor transport run, etc.

As the main subjects of the analysis types of activity (primary activity and other types of service), contracts/field, wells, implementation routes (domestic market, export, import), processes (infrastructure and operational), resources (the equipment and personnel), places of emergence of costs and also primary cost types were defined. Several main types of reports were developed for tracking of performance indicators on the analyzed objects:

"Profit and loss statement" allows to determine the cost of the fixed assets involved on each well, value of costs and payback of each well by wells and fields. Grouping wells, the company management receives summary reports on fields and contracts and also on divisions of the company. "Efficiency analysis of geological and technical actions" allows to estimate costs for the GTE, the received volume of additional production, specific costs for production and to judge what payback of the GTE. "Performance review of wells" allows to judge dynamics of the losses connected with idle times of production wells depending on the reasons of these idle times. The report of Netback, i.e. calculation of the adjusted price of oil sale on the basis of such indicators as the average price of implementation and specific expenses on implementation. "We widely lit this project in the company at all stages of its implementation. Taught people to use a system, explained its importance. As a result, even those who first were negative to news about implementation and skeptically looked at a system, recognize its advantage and convenience", - Berik Turmaganbetov says about importance of work with personnel.

Results

Thanks to SAS of Activity Based Management, the company possesses information on efficiency of all the assets now – wells and fields and also all processes which are carried out the GTE and sales channels of oil. The analysis allows to see what factors influence performance indicators and what extent of their influence.

"Earlier we could not speak about efficiency of wells and fields. Now we can measure it. This information allows us to model the business processes at change, for example, of price of oil, in advance to develop action plans on different groups of wells on a case of these or those changes. We visually see how many investments are made in service of each well and as these means pay off. And we can receive assessment in real time or for the necessary time frame", - Berik Turmaganbetov tells about importance for the company of the implemented solution of SAS.

"Afterwards we are going to connect that information which we receive thanks to implementation of separate accounting, with performance indicators (KPI) for different divisions. Proceeding from the current situation, divisions can set certain tasks. And software products of SAS will allow to control their execution. Besides, I think, we will be able to execute not only separate accounting on wells and fields, but also to pass to planning on each object", - says about options of further application of the implemented Berik Turmaganbetov system.