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Accounting Analytics Aims To Ease Oil And Gas Volatility

Though the corporate and small business accounting industry has seen an influx of FinTech innovation in recent years, it's less common for accounting technologies to be designed for specific industries. For industries with complex financial structures and a high degree of market volatility, however, working with accountants that understand the nuances of a particular vertical is an essential strategy.

In the oil and gas sector, recent market fluctuations have been particularly dramatic.

On Wednesday (April 1), The Wall Street Journal reported declines in U.S. oil prices after a period of gains on the heels of new analysis forecasting production cuts across the U.S., Europe and Asia. The coronavirus-impacted travel industry has led to plummeting demand for fuel, while a price war between Saudi Arabia and Russia has also added pressure on the market.

Demonstrating this volatility, just one day later Barron's reported a 30 percent spike in oil prices following U.S. President Donald Trump's optimistic tweets about Russia and Saudi Arabia and their ability to cut production to balance supply and demand.

With such dramatic financial changes from day to day — and even hour by hour during the most challenging times — players across the oil and gas sector demands sophisticated, agile financial management strategies.

Industry Pressures

According to Tom Black, President of Oil and Gas Business Solutions (OGBS), price fluctuations aren't the only factor that makes this market so challenging from an accounting perspective.

"There are several nuances to oil and gas accounting for operators," he told PYMNTS. "In general, these stem from every well having the potential for different ownership, as if each well has its own partnership. Both mineral interest owners and working interest partners can have contractual provisions for [a] percentage of ownership, costs, or exemptions.

"Managing these differences requires a detailed understanding of the business, the agreements governing the relationships, and accounting systems to correctly enforce these provisions," he added.

A 2017 report from PwC, "Financial reporting in the oil and gas industry," similarly highlighted the market's unique complexities. Not only can these challenges add pressure on industry participants and their accountants, CFOs and advisors, but the oil and gas sector is also tasked with generating significant revenue for governments in the form of taxes, making accounting and bookkeeping practices an essential component not only for the success of a business, but the strength of its broader economy.

Driving Strategy With Data

One-size-fits-all accounting automation technologies are not necessarily equipped to address the unique challenges of the oil and gas sector, opening up the importance of combining accounting technology with human advisory services and expertise to support companies of all sizes and types in this market, and others.

"Bookkeeping and back office services in the oil and gas upstream sector are complex and unique," said Dallas Market Managing Partner Gary Boyd of advisory firm Baker Tilly, which recently acquired OGBS. "More companies across industries are making the strategic decision to outsource their finance function so they can focus on their core business, making client accounting services one of the fastest-growing services in our profession."

But advances in accounting technology have also introduced the capability for advisors to the oil and gas arena to embrace tools like data analytics to augment their services.

According to Boyd, robotics process automation, artificial intelligence and data analytics are key innovations to robust accounting in the oil and gas industry. OGBS's Black agreed, noting that as accounting automation and data analytics expand their presence in this sector, the need for manual data entry can now be replaced by more strategic initiatives, which leads to growing demand for professionals that have high-level industry expertise to offer actionable insights and support strategic decision-making.

Baker Tilly Partner and Energy Practice Leader Tom Unke told PYMNTS that having a "frontline view" of not only how the industry works, but also emerging market trends, is essential, with data analytics an important tool to developing those insights to address the volatility of today and ready the industry "for an oil pricing rebound" ahead, with analysis derived from accounting data able to guide organizations future market strategies. This is particularly important during the current industry climate of declining oil prices.

"Low oil and gas prices can strain the financial foundation for many oil and gas companies," added Unke. "Companies are looking for ways to be more efficient in their operation. This current environment requires companies to rethink how and where work gets done."

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