IBM Services and SAP plan to develop an innovative digital solution to improve the adoption of blockchain capabilities for joint venture accounting (JVA) in the oil and gas industry. The solution expects to improve reconciliation and settlement times between operators and non-operators.
JVA is a unique but common type of accounting in the oil and gas industry. It divides revenues and expenses on a billing statement among its owners, royalty owners, and partners according to a standing agreement.
Currently, upstream operators process and generate thousands of joint billings each month. Many are created on custom software and distributed via mail. These billings are regularly audited and often need additional supported documentation, which must be tracked. Since each party usually has its own ledger, discrepancies between parties regularly causes an increase in reconciliation, complexity, and settlement times. As the number of billing participants increases, the process becomes more complicated.
It’s time for oil and gas companies to simplify the joint venture accounting with blockchain
Due to the huge amount of effort and high cost of reconciliations to sort out billing and payment arrangements, it’s time for oil and gas companies to simplify the JVA process.
Adopting of blockchain is the perfect solution. It creates a record of immutable transactions that can be shared across a closed group, or remain open across a broad network of participants. When a new digital transaction occurs, an expense is posted or exchanged — a transaction notice is sent to all the partners and participants involved, which can be updated in near real time.
New blocks of transactions are validated and linked to older blocks to create strong, secure, and verifiable record without intermediaries or centralized databases. This also helps eliminate “accrual fraud” by partners or middlemen by creating validated, auditable transaction records.
IBM and SAP will focus on solutions implementing blockchain technologies around JVA built on the SAP Leonardo digital innovation system. These solutions will help oil and gas companies transact business with partners and third parties, track payments, and provide supporting documentation — all with permissioned sharing and distributed securely on SAP Cloud Platform Blockchain service built on Hyperledger Fabric, an open source collaborative effort created to advance cross-industry blockchain technologies.
IBM and SAP customers are demanding better digital capabilities, including transparency of the distributed billing ledger. The new solution, co-innovated by IBM and SAP under their collaboration around SAP Leonardo, will meet that demand.
Zahid Habib is vice president of Global Chemicals & Petroleum at IBM.
Benjamin Beberness is global vice president of Oil & Gas at SAP.