Given the size and complexity of the upstream oil and gas segment, let’s explore some specific use cases where the application of blockchain technology can increase efficiency, reduce waste, augment profit, and/or improve data management. We will discuss four overarching use cases — Reconciliation, Performance Based Contracts, Land Rights, and SupplyChain — as well as more specific examples within each.
Everything from mineral rights to maintenance — blockchain technology can help improve the oil and gas.
Reconciliation Use Cases for Upstream Oil & Gas
Today, reconciliation between companies is a slow, laborious, and manual process. The number of companies involved in the E&P of a single drop of resource means an extraordinary amount of disparate data, project attestation, accountability, and definitions of “complete.” For some of the specific use cases below, we see how blockchain technology can alleviate these issues:
Identity & Certification on the Blockchain
Majors and NOCs rely on oilfield services to complete some of the more specialized tasks in well creation, maintenance, and operation. The workers who perform these tasks must have specific certifications for legal, safety, and regulatory purposes. With the integration of a federated identity construct on the blockchain — i.e. an identity associated specifically with one’s company through a hierarchy of sub-contractors — all oilfield services can collectively manage the certifications of their employees.
What does this mean? Currently, it can take 45 days to prove that a well or rig was staffed in the appropriate order and with the appropriately-certified individuals. Data must be drawn from dozens of companies, worker identity affirmed, certification identity affirmed, and sequence affirmed. On a shared, blockchain-based system, one’s identity and related certifications are automatically recorded when s/he boards the rig, and the sequence of workers is transparent and immutable to all who have data access.
Currently, identity management is a source of many reconciliation issues for companies. The inability of companies to easily prove that worker A has the proper, up-to-date certifications and that worker A inspected the well before worker B is a source of tremendous liability. Many companies do not know and cannot prove what “happened” on their own oilfield for up to 45 days after an incident because of the difficulty in managing worker identity. With a federated identity construct, companies will be able to reduce the amount of time required to reconcile facts and affirm certification.
Field Capture Errors
Field personnel make errors when entering data on oilfield tickets. Often alphanumeric, these codes are crucial for inter-party communication, data tracking, and maintenance records. Moreover, when back offices are processing these paper tickets, they too may be prone to human error and mistype this information. On average, error rates hover around 25–30%. Altogether, this human error leads to a tremendous number amount of reconciliation efforts that cost time and money. AFE#, PO# or WBS# are examples of coding gone wrong, which often are the culprits in these instances. Even the UWI (unique well ID) changes are not tracked uniformly across companies on the same well, leading to problems in back office reconciliations.
Blockchain technology can’t entirely protect from human error; someone can still enter an alphanumeric number incorrectly into a blockchain platform. However, the records of these errors is a lot clearer with the overall data transparency provided by the technology. This means reconciliation efforts are easier, less expensive, and less labor intensive.
Many of the issues above relate back to general inability to effectively collect, record, and coordinate data on an oilfield or well and between all involved stakeholders. The data obfuscation that results is detrimental to companies and workers from a liability and financial perspective. Oftentimes, data is haphazardly collected and then organized and analyzed in multiple systems after the fact — a “double work” situation. Blockchain technology enables data sanitation by providing a single repository of all information, access to which can be determined and managed by the consortium of stakeholders with access to the platform. The application of smart contracts can automatically structure that data into a digestible format, removing the need for manual re-organization.
As a consequence of many of the issues discussed above, oilfield services companies are often not compensated for weeks or months after completing their tasks, often because of the difficulting in proving they did so. Because so many services companies rely on the performance of a separate team or individual, in order for one company to be compensated, the preceding companies must all prove they completed their tasks in order as well. This causes tremendous backlog in the reconciliation process, making staggering amounts of money liable as companies wait for compensation. With a shared, accessible ledger that collects and structures data, manages identity, and ensures transparency, the financial reconciliation process can be cut down from months to a matter of days.