Since the decline in oil and natural gas prices since 2014, independent operators in the U.S. have struggled to find their footing. Thanks to the hydraulic fracturing technology that has opened up the doors to more-easily accessible shale oil, we’ve entered into an era of oil abundance. So how do you sustain your business when oil floods the market?
Ernst and Young ‘s recent report explains how operators can move with the market to protect themselves from a financial bottoming-out. We have no affiliation or ties to Ernst and Young, but I found the article interesting to see as a whole how the independent operators (our entire client base) is handling the rocky oil and gas climate today.
The three ideas for sustainability despite low commodity prices suggested were: operational excellence, aligned capital structure and building the right portfolio.
Low oil and gas prices affect everyone in the industry. Make your operations as agile as possible by looking at your office processes, systems and personnel. These three factors decide how fast you can make decisions, and what funds are needed to make your organization function.
Manage how your cash flows and cover debt payments right now. To move forward into the future, operators will need to step away from mega-projects with high operational risks involved. Instead, focus on projects that require less capital and shorter payback periods to allow your company to move forward.
Many operators are selling off assets in a larger scale to stay afloat. As more and more assets continue to enter the market, companies gain assets that will help them grow in the future and increase equity are the ones that will come ahead when the prices begin to rise once again.
In our 24+ years in business working with oil and gas operators and accountants, we know that each business is unique in how and what processes it needs to handle revenue distributions. These processes are sometimes complex enough that a whole new software program is used. It’s why we often suggest clients customize their oil & gas accounting software to get more functionality.
Commons tasks often include: Delay Rental Payments, Authorization for Expenditure (AFE), Free House Gas, and State Reporting requirements. Most oil and gas accounting software programs will offer optional modules to make the standard software more functional.
This allows you to handle multiple tasks within one software program.
Smaller companies will often manage with spreadsheets. While sometimes cheaper, these aren’t as professional and can be timely to use and update as your company grows. Mistakes are often made with spreadsheets and these can quickly become costly in terms of both money and public image.
The time spent managing your spreadsheets should also be considered. The labor will affect your bottom line and sometimes you just don’t have the extra time.
When mistakes, public image, labor, and peace of mind are all factored in, it quickly becomes obvious that the cost of an add-on module is a huge savings.
A simple add-on module allows for better historical records, a more professional look and any costs are typically recouped in only a few months.
Some of the optional modules SherWare offers clients include:
Advanced Reporting (build your own reports)
The initial price of the software is typically pretty clear. However, people are often surprised when they run into hidden software costs down the road. When picking a software program ask about any future costs that may be involved. Here are two charges that are the most irritating to run into after you purchase and how to not be surprised by them.
Many software companies sell the software wholly for a stand-alone price. The buyer will then need to re-purchase every few years or purchase any major upgrades that are released. These updates are necessary so that the software will continue to work with all other new technology that is released each year. But when not expected, these charges can be surprising and discouraging.
The best way to avoid this is to purchase a software program that offers yearly maintenance or support contract that includes all updates. These contracts are generally cheaper than re-purchasing the software every few years. This allows you to more easily see what the ongoing costs are going to be and budget accordingly.
The oil & gas industry is always changing and updates are regularly needed for newer operating systems, 1099s, regulation changes, and various other reasons. To save money, some clients will try to skip out of a year of support.
The intention is to save money this year, and then renew later if needed, or to simply skip out of paying support for a few years. This typically doesn’t work very well as most software companies require that you purchase past updates as well.
When a support contract is used for updates, then a fee is typically charged to be reinstated to support. The result is that the savings weren’t very much and typically not worth the hassle.
Software is typically only supported for a set number of years and if you skip out on support for the duration of that period, then you may find yourself in a spot where you have to re-purchase the software because support is no longer available for your version.
To avoid the costs associated with re-establishing a support contract it is best to simply maintain your relationship with the software provider by staying current on support. This is typically the cheapest way to maintain long term use of a software program.
What other hidden software costs have you run into?