Making the switch to operational mode in the modern market

For an exploration business, the move from the investment phase to becoming an operational player brings with it a need to re-evaluate a host of its management and accounting systems.

Madagascar Oil, headquartered in the country’s capital city, Antananarivo, was founded in 2004 and focuses on the development of onshore heavy oil fields and the exploration for onshore conventional oil in the island nation.

The company moved quickly through its investment phase following its establishment – confirming the size of reserves and embarking upon a pilot project – to preparations for production testing activity.

The transition into an operational mode necessitated the formation of financial systems to support both its immediate and long-term requirements.

It linked up with Absoft, based in Aberdeen, Scotland, to forge a solution. We are one of the largest and longest-established independent SAP consultancies in the UK and are an accredited partner of SAP UK.

The SAP product we chose to deploy with Madagascar was a new one, Advantage Oil and Gas™. It’s a sector-specific business management solution which has been developed in direct response to the needs of small and midsize operators.

In spite of Madagascar Oil being a new entrant, its requirements remain as complex as those associated with larger companies. Its subsidiary and licensing arrangements mean it needs to apportion costs quickly and accurately, and have daily visibility of its operations.

As an international operation, with offices in London, it has to work in multiple currencies and languages. Beyond that, the company has complex reporting requirements, needing to report to the Madagascar authorities and it’s predominantly US investors, as well as the group and the board.

Madagascar Oil made the decision to acquire its solution as a managed service. Given the business’ stage of development, it was logical to do so instead of developing an in-house capability. It allowed the company to maintain its focus on developing the business and leaving the running of the system to an expert, external resource.

Key members of the management team had already acquired experience of SAP and, after a tendering process, Absoft was selected to implement the system. We had to instigate the process quickly for a user population of 10, given only two months from contract signing to a requirement by Madagascar Oil to provide comprehensive reporting to a wide range of stakeholders.

Advantage Oil and Gas™, as a whole, is a modular software solution and clients deploy only those functions that they need, extending and enhancing the system as appropriate when business requirements dictate.

Its core services lie in financial management, joint venture accounting and analytics. It features finance functionality such as general ledger and accounts payable and receivable in a multi-currency, multi-lingual and multi-country environment.

Supply chain management, including procurement and stock management, and workforce management across a range of logistical issues – including talent pool, workforce mobilisation and scheduling, and competency - can be added as optional extras if required.

The system provides built-in content, tools and methodologies for turnkey deployment, and can also incorporate a number of industry specifics, including extensive pre-configured upstream business processes, pro-loaded data such as qualification and training catalogues, and key analytics and reporting tools.

In broad terms, its development reflects a market need which the IT sector had to respond to in the context of the changing dynamics of the oil and gas industry, specifically on the UKCS. The increasing divestment of mature fields and the growth in number of new operators who share many of the characteristics of the majors in business process terms are a backdrop to much North Sea activity. Many of the emerging operators, however, do not have the resources at their disposal to fulfil their process obligations in a tight and competitive market.

From that scenario develops a new commercial imperative: creating integrated solutions that maximise efficiency and address the complexities of the modern marketplace, instead of the deployment of stand-alone products for individual business areas. These companies potentially need to:

  • secure fast financial close in many different countries
  • increase competitive advantage and margin protection through integrated cost collection of time and material and subsequent billing for customer projects
  • manage accurate stock movements and visibility of stock leading to lower stock holdings and enhanced customer service
  • reduce training and mobilisation costs
  • reduce the cost of compliance with health, safety, legal and contractual requirements for both people and equipment.

For Madagascar Oil, the implementation of the SAP system has revolved around specific accounting benefits: it allows the company to run Malagasy Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) accounting, has the language support it requires and delivers key joint venture accounting capabilities.

The business has seen the time to book transactions reduce markedly and the elimination of a significant amount of time calculating exchange rates. Invoices can now be booked and paid in whichever currency is required, and it is also now possible to book a great deal more detail about transactions.

It means a much more dynamic accounting environment, and allows for greater accuracy and reliability of information, offering total confidence that transactions are being booked properly.

The system can be accessed over a secure connection from anywhere in the world and its reporting capabilities mean that, for example, monthly reports can be made available to operational managers in local or group currencies. Further, it can precisely allocate tasks and responsibilities to accountants to create a much more efficient working system. The bottom line is that the company managers now spend more time focused on running the business and less time processing transactions.

In truth SAP had not always been viewed as a suitable product for smaller and midsize operating companies so the challenge for us in working with companies like Madagascar Oil has been to harness its strengths and make it accessible to those sectors through a scalable, modular approach.

Madagascar Oil’s Finance Manager Didier LaFont says: “The solution gives us a solid foundation for the company’s future development. It its extremely reliable. It is also extremely scalable, so we know it will continue to meet our requirements as we grow. Plus, with SAP’s broad range of applications, we can extend the system’s functionality as we need to and be sure that any new applications will integrate seamlessly with what we already have.”

As operators in the midmarket space pursue their objectives of maximising recovery from more mature resources and developing new niche ones, it has long been acknowledged that they need to make the most of every opportunity to maintain a competitive edge.

New developments in terms of IT, and specifically its deployment in business management processes, offer emerging operators robust support as they seek to achieve their goal of securing balanced, value-creating asset portfolios and thus, ultimately, play a key role in optimising corporate performance.