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Feb 22, 2016

How Murphy Oil Tackled the Annual Budget Problem

Author: Caitlan Capps

Practical lessons in advancing towards oil and gas budget utopia

Budget season – it’s inevitable.  Every company, regardless of complexity or size, must generate a budget for the upcoming year. Invariably the process drags on past initial due dates or as teams jockey to make changes and relay updates along the way.

Why is budgeting so painful? Management insists that teams have tools and software to enforce an efficient budget workflow, and that procedures are in place to ensure timely budget completion.

Typical Budget Cycle

Budgeting Done Better – Murphy Oil

Murphy Oil Corporation decided to tackle “the budget problem” back in 2011 using enersight, and has been working to evolve to “budget utopia” ever since.

In Murphy’s onshore business unit, their Eagle Ford asset organization was the first to initiate a budgeting change.  Field development teams for each field in Eagle Ford advanced from basic budgeting processes to using enersight’s integrated planning workflow. With enersight field development plans incorporate information that originates from operations, moves that data through to strategic planning then ultimately to corporate guidance then back again.  In management vernacular they have “closed the loop”.   Hitting that milestone, they next asked themselves as an organization, “What’s the next step to continue evolving towards better budgeting?” And the answer was refinement.

The Eagle Ford asset is now not only able to convey to the corporate level the tangible effect that corporate guidance ultimately has on budget forecasts, but they are able to take their allocated resources and maximize their economics, targeting corporate metrics and strategy along the way. Using enersight to create field-specific scenarios which take into account resource constraints per budget guidance, each field development team can refine and adjust their models to take full advantage of those resources.

First Steps

The Eagle Ford asset at Murphy took the approach that in order to be successful, they had to build a solid foundation, then grow it.  Operating under the “first crawl, then walk, then run” method, they established the building blocks of a budget process.

First, using fundamental tools such as a functional assignment chart and a RACI chart, the asset team was able to clearly define roles, responsibilities, and accountability of each team member.  Second, Murphy generated a comprehensive list of data that is required to perform a budget cycle, and layered onto it a timeline with associated due dates. By publishing and circulating these tools regularly, team members across business functions were kept abreast of the current progress of the budget workflow as well as what is still missing.

Continuing Evolution – Field Development Team Reviews

Continuous shared access to data and workflow status was a critical start to maturing the budget cycle and realizing more productive collaboration among team members. But more evolution was needed.

Murphy began to practice Field Development Team Reviews to progress from data visibility about the asset to collaboration on strategy.  The review requires a member of all business functions to be present and involves reviewing the results of data input updates to the functioning “budget” enersight model.  Using enersight as Murphy’s field development tool, the teams can collectively see and understand how changes from one business function can effect another, explain why, and measure the impacts – both positive and negative. enersight results are not a black box to any business function, and all begin to understand the importance and relationship of their business to another’s.

These reviews are productive because the data in enersight being analyzed by the group has already incorporated all obligations and conditions required to create a viable forecast. The reviews force attention to the operational and technical aspects of an enersight model such as date and duration accuracy of drilling and completion activity, network constraint forecasts, increased operating costs, producing well counts or facility production ‘hits’ based on pad drilling.

Budget Workflow

With modelling information accurate and accessible, Murphy’s Eagle Ford teams can work to devise and implement strategy on the asset rather than focusing all available time just struggling to assemble budget numbers that might be accurate. With time and enersight software the team can take a more forward-looking stance.  Some Field Development team reviews result in multiple “back-pocket” scenarios which are pre-worked scenarios of an enersight “budget model” done based on high or low assumptions of things like well performance, rig availability, lease requirements, and facility or capital constraints. These scenarios can be saved and explored further if corporate guidance shifts and a plan to adapt is rapidly needed – as often occurs.

Closing the Loop with Management

In almost any oil and gas company, you can hear rumblings about how management has a frustrating habit of reviewing budget data put forward to the corporate team, then declaring new restrictions or constraints and requiring teams to painfully adapt their forecast given tighter conditions.  Murphy recognized the need to allow for iterations without the frustration or loss in forecast achievability.  Murphy closed the loop with management through repeat usage of an enersight budget model.  Once management feedback is handed down, teams return to the model they have developed in enersight, and can update conditions in hours.  More than adding efficiency in the process, looping back through enersight  generates a new budget for corporate to reflect the true effects guidance has on forecasts, be it production, cash flow or rig utilization.

Budget Workflow

A timely and accurate feedback to corporate allows everyone involved to better understand the sensitivity and complexity of an asset. An organized and iterative budget cycle enables all business functions to have performance indicators based on achievable goals. Ancillary benefits include being able to compare throughout the course of the year current results of an updated enersight model against the finalized budget version, explaining variance against budget, and identifying low performing aspects of asset development that should be addressed.

Adapting Wisely – Refining a Reliable Budget

Having achieved a ‘closed loop’ of management feedback, and realizing more accuracy in forecasts and efficiency in the budget process is often the end goal sought by companies. But Murphy didn’t stop there.  The ultimate question that Murphy asked of enersight’s software was “now that we have a finalized budget, how can we get the most out of it”?  They understood two critical things: first, that the budget, in its simplest form, is purely a snapshot in time and that the environment and assumptions in which the budget was created are most certainly subject to change; second, given the inclination for changes to occur, the budget could provide a start point to rapidly assess how Murphy could best adapt to market shifts utilizing the same budget or reallocating budgeted resources.

From an approved budget model in enersight, the team can rapidly refine forecasts to align with evolving corporate goals or shifting markets. Staying within corporate budget guidelines, teams can build versions of enersight models, which evaluate how best to increase production output, utilize constrained space, and maximize economic metrics all while reducing expenses.

Upside of Modelling Accurately from the Wellhead

From beginning to end, Murphy has used enersight to build a model that reflects the true flow of production from a wellhead to a sales point, taking into account environmental effects and interdependencies in between. The teams have ensured that their model is accurate operationally, that it is current based on actual constraints and future assumptions, that they understand the relationship between one business function and another, and that they believe the outputs are achievable.

The collective effort of paying attention to operational detail and accuracy, allowing team members to take a look at strategy without having tunnel vision, compare effects of changes on forecasts, maintaining a closed feedback loop with management, and refining allocated budget today equips Murphy to be adaptive, dynamic and strategic whilst navigating a constantly changing and sometimes harsh industry environment.

About the Author

Caitlan Capps is a Services Consultant with 3esi-Enersight operating out of Houston, US. Caitlan is an industrial engineer with an MBA. She brings to 3esi-Enersight over three years of experience in project management and has worked on multiple integration projects of varying size and complexity. She helps introduce best in class workflows for modeling production and economics in order to guide E&P companies meet management targets while maximizing their value.

About 3esi-Enersight

3esi-Enersight is the world leading provider of solutions for integrated strategy, planning and execution in upstream oil and gas. From the field, to the boardroom, in operations across 6 continents, 3esi-Enersight is empowering E&P organizations to maximize the value of their upstream portfolios and stay ahead of the competition. Our solutions help customers work more efficiently across teams and functions and make better strategy and planning decisions based on data they can trust. Visit our website at www.3esi-Enersight.com.

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