Technology’s next frontier in oil and gas? The case for “RegTech” in E&P licence management

I have been a lawyer and regulatory consultant in the oil and gas industry for over a decade. During that time, through various roles on both regulator and operator sides of the fence, I have had a bird’s eye view of how companies, large and small, manage their compliance.

Interestingly, despite the huge advances in technology and the steady uptake by operators of software in key areas of their operations, one thing that is largely unchanged is the approach to managing E&P titles and the associated compliance requirements.

I have a few theories on the reasons for that and why, on the whole, the application of technology to regulatory compliance, known as ‘RegTech’, has been a slower burn than that related to financial services (FinTech).

FinTech’s rapid cross-sector rise

We have all witnessed the phenomenal growth of the FinTech sector over the last decade which has changed the way we bank, shop, do our book-keeping, file our tax returns and pay our employees. Most organisations, no matter what sector they operate in, have adopted accounting software to automate repetitive processes, reduce risk of human error and access detailed reports in an instant that would take hours or days of data manipulation in spreadsheets.

Managing our financial data in purpose-built software systems reduces risk and saves hundreds, if not thousands, of worker-hours. From a procurement perspective, apart from selecting which software vendor to go with, the business case is pretty much a slam-dunk.  It’s also likely to involve a relatively tight group of stakeholders led by the finance team with IT support etc.

Compliance touches every part of an oil and gas business

Contrast that with compliance. Virtually every business unit and functional team has its own set of compliance requirements.  Legal, Finance, HR, Operations, HSE, to name but a few, all have rafts of laws and regulations to comply with in their day to day work. Finding a single software solution that works equally well for a corporate team divesting assets and an operations manager dealing with a hydrocarbon escape is a challenge to say the least.

Finding a single software solution that works equally well for a corporate team divesting assets and an operations manager dealing with a hydrocarbon escape is a challenge to say the least.

It is this same dispersion of compliance responsibilities across the organisation that can make it hard for any one person to write the business case for a fit-for-purpose solution. The various teams have usually come up with their own ad-hoc systems and processes to manage their piece of the compliance puzzle – often a combination of Excel, Outlook reminders and legacy databases. Increasingly we see Sharepoint based systems and risk or other software systems being used to shoe-horn in compliance requirements.

Due to the sheer number of different systems and processes across the organisation and the siloed nature of the information, it can be hard to get a gauge of how much time the company as a whole spends on compliance management. This, combined with the fact that (unlike lawyers) many people don’t put a value on their time, can lead to the fallacy that ad-hoc systems, such as Excel, are ‘free’. This perception can make people think the business case for compliance management software is doomed.

Newsflash! Your current ad-hoc systems are far from free.

Let’s look at one example: a petroleum exploration licence. Leaving aside for a moment which jurisdiction you are operating in, most will have some variation on these key obligations:

  • Annual fees (Finance team)
  • Periodic reporting (Exploration team)
  • Landowner/native title obligations (Land/Stakeholder Relations Team, Finance Team, Legal Team)
  • Work Programme commitments (Exploration/Operations Teams, Health and Safety Team, Environment Team, Finance Team)
  • Joint Venture requirements (Commercial Team, Finance Team)

Think about the number of people involved in meeting those obligations, the time they are working on it multiplied by their salary, multiplied by the number of work programme activities during the year, multiplied by the number of licences, plus all the other licence and approval conditions, and now add in all the other jurisdictions where you have assets. Whether you use a calculator, spreadsheet or a specialist piece of FinTech software to work this out, you’ll get the same answer… title management is an expensive exercise.

Fines and penalties for non-compliance are almost the least of your worries, it’s the cost of project delays that can really rack up.

Efficiency has been the mantra through the oil price lows and yet how much time is still spent just trying to share business critical information between teams? How often are there impacts on operational timelines because of a breakdown in communication or elements falling between the gaps?

Fines and penalties for non-compliance are almost the least of your worries, it’s the cost of project delays that can really rack up.

Oil and gas sector compliance is complex and word heavy

I’m no accountant but the smart folks that are seem to have done a pretty good job of systematising the key accounting processes in some great software offerings. Let’s face it, even if your accounting software isn’t perfect, you are never going back to spreadsheets.

The trouble with compliance is it involves a lot of words, not numbers (this is why lawyers still hold out hope that AI won’t replace them entirely). Its complexity lies in the nuances of language and, for oil and gas activities, in the sheer volume of compliance obligations related to a single E&P activity like acquiring seismic or drilling a well.

Compliance obligations come from a range of laws and regulations under licensing, health and safety and environmental frameworks with disparate requirements. Add to that the contractual obligations to landowner/indigenous groups and joint venture requirements. Then include environmental and other approval conditions, standards and codes of practice. The list goes on. Throw in the complexity of different obligations depending whether the activity is onshore or offshore. You’re probably getting the picture!

The nature of these requirements is that they are activity-driven or event-driven and they are often time-bound to your operations. Although your lawyers can help you with identifying these legal obligations, they are not close enough to the action to actually fulfil them.

So who does this leave to make sure your obligations are taken care of? This task often falls to people in your operational teams with no legal or compliance background who have limited ad-hoc tools and processes like Excel and Outlook to make sure these things get done on time, every time. It might not be what they were dreaming of when they were studying geology or engineering. Without doubt, they could be adding more value to the business by spending their time doing other things.

Even purpose built compliance management systems often can’t deal with the complexities of oil and gas operations. I love a good obligations register just as much as ISO, but that’s just a hygiene factor and it can be easy to fall into the trap of thinking obligation capture is the same as obligation management. Unless you’re going to tape 3000 obligations to the wall and read them over your morning coffee, they’re not terribly helpful.

To be of any use, compliance obligations must live and breathe in the context of your business operations or they are as good as dead. Unlike accounting software, the nuances of compliance requirements for different licences, jurisdictions, locations and activities leaves most off-the-shelf compliance software solutions on the starting blocks.

Embrace RegTech and ditch the spreadsheets for good!

Oil and gas companies are now increasingly using technology and seeing the value that can be generated by having instant access to production data, well performance figures, and in-depth analysis of costs and forecasts.

Compliance obligations must live and breathe in the context of your business operations or they are as good as dead.

Harness the technologies available to bring those same automation efficiencies and insights to your global compliance and risk management and you’ll reap the benefits of always being one step ahead. Your geologists and engineers will thank you for it too.

Caroline Taylor, CEO Totum

Caroline Taylor is the founder and CEO of Totum.

Totum‘s cloud-hosted compliance and risk solution, Permitintel, has been developed specifically for the oil and gas industry to enable operational teams to confidently manage complex compliance obligations in the context of their E&P activities.

Find out more at Managing E&P Licences.