A recently announced venture between several Western Canadian oil and gas companies to jointly develop a common IT solution is a template other sectors could feasibly follow, according to one industry observer.
Devon Canada, EnCana, Husky Energy and Talisman Energy last month announced plans to develop a production accounting software system in association with technology integrator CGI Group Inc. Montreal-based CGI will build the system and, over the next 10 to 20 years, maintain the software as well, the companies said.
The “next-generation” systems will replace older, legacy technology used to calculate all the processing involved in revenue, expense and royalties. Currently the oil and gas sector spends as much as $250 million annually to track production accounting, said Michael Kurtz, CGI vice- president for the Calgary region. The arrangement means that the respective IT departments would share the costs within the industry. The new system could potentially become a sector-wide solution available to other Canadian oil and gas operators, the companies said.
The prospect of having a sustainable long-term solution is very appealing, as changing production accounting systems is challenging and expensive, said Bill Stevenson, comptroller, upstream operations for EnCana Corp., in a prepared statement.
The common solution replaces 20-year-old technology and should improve the quality of information by providing end users more time for data analysis, Kurtz said. Among the approximately 120,000 oil wells within Western Canada, the older accounting technology only covers about 60 per cent of these properties. The common production accounting solution would ramp that number up to 80 per cent, significantly boosting efficiency and reduce manual-based processes, he added.
Joint ventures between oil companies are common but what’s unique to this arrangement is that this is being done in the IT space. It’s rare, but not a market differentiator, Kurtz said. “It really hasn’t happened before in the oil industry and it’s something that the industry players don’t regard as an industry advantage or disadvantage — it’s just some work to be done.”
This particular model could work in a situation where there are a number of industry players, Kurtz said. “I think that industries that are not that large have an opportunity to do this co-venture approach to develop applications that are aimed to serve the industry’s needs as opposed to individual needs.”
Yogi Schulz, president of Corvelle Management Consultants in Calgary, dubs the arrangement “consortiaware,” adding that while the model might applicable to other sectors, it’s not an easy feat to pull off.
It can be difficult of to bring together similar organizations which can agree on the scope, technology and business terms of the consortium, Schulz said.
The oil and gas companies are already using the software of a CGI predecessor company called ATS Inc. that was acquired by Quebec’s Cognicase, which was in turn acquired by CGI.
But putting the deal together was only the first hurdle, Schulz said, adding that if CGI and its partners reach their goal, the product will become a significant business threat to IBM/Qbyte, which is the current dominant player in the oil and gas administrative software segment
“Now CGI has to deliver a significant amount of software,” he said.
