IT’S 2017. So, you may be surprised to learn
that every week billions of dollars in the oil
and gas industry are settled using a manual
process that relies on paper invoices,
spreadsheets, PDFs, and emails. But that’s
today’s reality for many energy settlement
departments across the globe.
Settlement departments are the of-ten-unheralded engines of companies’ financial operations. The physical and financial energy transactions that keep oil and
gas flowing worldwide produce mountains
of financial data that end up as invoices on
the desks of settlement analysts. These
analysts then engage in a time-intensive
and date-critical effort to complete tie-outs
with multiple counterparties across the
energy supply chain and meet critical payment deadlines.
Since individual invoices often total tens
of millions of dollars, a settlement department’s work is vitally important for corporate cash flow, credit exposure and risk
management. Given the complexity of the
energy supply chain, there are frequent
discrepancies in invoices. For example, a
natural gas producer may seek to produce
30,000 MMBtu per day to meet customer
orders, but may not hit that exact volume.
As a result, the company’s settlement department then needs to communicate with
their counterparties to identify discrepancies, confirm agreeable resolutions and
complete transactions to meet payment
deadlines. Settlement reconciliation is often
a long and involved process that delays
payment and greatly increases a company’s
When energy prices were soaring, it was
easier to ignore inefficiencies in the settlement department and simply fill in gaps
with more manpower. However, with companies relentlessly searching for operational
cost savings everywhere they can find
them, financial leaders are taking a hard
look at their business processes.
Given the amount of money flowing
through the settlement department and
the costs and the risks generated by inefficient processes, the energy industry needs to
make a change to cut down on settlement exposure and reduce the amount of capital
needed for risk management. This change would in turn allow company leaders to apply
the savings to other cash-starved areas of their businesses.
Companies also need efficient settlement operations to ensure accuracy and maintain
cash flow. However, industry trends have put new strains on settlement departments and
analysts, and this, combined with the stubborn persistence of manual processes in the
industry, can negatively impact companies’ bottom lines.
Fortunately for oil and gas companies, the fintech revolution that has transformed
other industries is beginning to make inroads in the energy sector, bringing automation
and efficiency gains to help settlement departments address their most pressing
DATA EXPLOSION DRIVES SETTLEMENT CHALLENGES
The volume of data has exploded in the energy industry with the future looking more data
intensive than anyone could have planned for even a short while ago. Companies continue
to create new products in their relentless drive to increase the number of new clients and
grow their bottom lines. As a result, energy companies’ contract, credit and settlement
departments face new pressure to quickly identify exceptions and reconcile ever-larger
volumes of transactions with rising numbers of counterparties. And individual analysts
are frequently charged with handling an expanding list of counterparties across multiple
regions with a growing number of customized products.
Compounding the challenge, invoices often arrive in different formats, with data presented in varying ways, adding frustrating complexity to an already difficult manual process.
Further, as the number of counterparties and resultant financial data increases, the number
of exceptions settlement analysts have to identify and resolve also increases.
In the end, settlement analysts, who were initially hired to do everything from price
discovery, cash-flow reporting, counterparty management and data analysis, focus almost
entirely on identifying exceptions on invoices and working to complete transactions with
Fintech revolution coming to settlement
COMPANIES NEED EFFICIENT SETTLEMENT OPERATIONS TO ENSURE ACCURACY AND MAINTAIN CASH FLOW
JEFF WAGNER, AQUILON ENERGY SERVICES, CHICAGO