Turbocharge Oil & Gas SAP Transformation: KTern.AI Advantage

Introduction

The oil and gas industry is undergoing a significant digital transformation, driven by the need for enhanced operational efficiency, real-time data insights, and regulatory compliance. At the heart of this transformation is SAP S/4HANA Cloud, a robust enterprise resource planning (ERP) solution tailored to meet the unique challenges of the downstream oil and gas sector. This article explores the implementation, benefits, and case studies of SAP S/4HANA Cloud in the oil and gas industry, providing a comprehensive overview of how this technology is revolutionizing the sector.

Oil & Gas - Operations

Key Processes Involved in Exploration, Extraction, and Production

The upstream segment of the oil and gas industry involves the exploration, extraction, and production of crude oil and natural gas. Key processes include:

• Seismic Surveys: Utilizing advanced technology to map subsurface structures and identify potential hydrocarbon reserves.
• Drilling Operations: Employing drilling rigs to create wells that reach hydrocarbon deposits.
• Well Completion: Preparing wells for production by installing necessary equipment and ensuring the well is ready to produce oil or gas.
• Production Management: Monitoring and optimizing the extraction process to maximize output while minimizing costs.

Refinery – Crude and Product Shipping

Refineries play a crucial role in converting crude oil into various petroleum products. Key logistical aspects include:

• Crude Receipt: Managing the intake of crude oil from various sources, ensuring quality and quantity are as per specifications.
• Product Shipping: Efficiently transporting refined products to distribution centers and end-users, optimizing routes and minimizing costs.
• Inventory Management: Maintaining accurate records of crude and product inventories to ensure smooth operations and meet demand.

Commodity Trading & Crude Receipt

Commodity trading involves buying and selling crude oil and refined products in global markets. Key considerations include:

• Market Analysis: Monitoring market trends and pricing to make informed trading decisions.
• Risk Management: Implementing strategies to mitigate risks associated with price volatility and supply disruptions.
• Contract Management: Negotiating and managing contracts with suppliers and customers to ensure favorable terms and conditions.

Oil Storage & Tank Farm Management

Effective management of oil storage facilities and tank farms is essential for ensuring the integrity and safety of stored products. Best practices include:

• Regular Inspections: Conducting periodic inspections to identify and address potential issues such as leaks or corrosion.
• Inventory Control: Implementing robust systems for tracking inventory levels and movements to prevent stockouts or overstocking.
• Safety Measures: Ensuring compliance with safety regulations and implementing measures to prevent accidents and environmental incidents.

Refinery Production Accounting & Inventory Valuation

Accurate production accounting and inventory valuation are critical for financial reporting and decision-making. Key aspects include:

• Cost Accounting: Allocating costs accurately to different production processes and products.
• Inventory Valuation: Using appropriate methods such as FIFO (First In, First Out) or LIFO (Last In, First Out) to value inventory.
• Financial Reporting: Ensuring compliance with accounting standards and providing accurate financial statements.

Inventory Valuation in SAP Environment

SAP IS-OIL provides specialized tools for managing inventory in the oil and gas industry. Key techniques include:

• Material Ledger: Utilizing SAP's Material Ledger to track inventory values in real-time and provide detailed cost information.
• Integrated Inventory Management: Leveraging SAP's integrated inventory management capabilities to ensure accurate and up-to-date inventory records.
• Reporting and Analytics: Using SAP's reporting tools to generate detailed inventory reports and gain insights into inventory movements and valuation.

Traditional Costing vs. Material Ledger for Refineries

Traditional costing methods often lack the granularity and real-time capabilities required for effective inventory management. SAP's Material Ledger offers several advantages:

• Real-Time Costing: Providing real-time cost information for inventory items, enabling better decision-making.
• Detailed Cost Allocation: Allocating costs at a more granular level, improving accuracy and transparency.
• Integration with Financial Systems: Seamlessly integrating with financial systems to ensure consistent and accurate financial reporting.

Oil Conversion & Pipeline Processes

Key Aspects of Oil Conversion and the Management of Pipeline Operations:

• Refining Processes: Utilizing different refining techniques to convert crude oil into gasoline, diesel, and other products.
• Pipeline Management: Efficiently managing the transportation of crude oil and refined products through pipelines, ensuring safety and minimizing costs.
• Maintenance and Inspection: Conducting regular maintenance and inspections to ensure the integrity and reliability of pipeline infrastructure.

SAP IS-OIL Scenarios

SAP IS-OIL provides specialized scenarios for managing various aspects of the oil and gas industry. Practical applications include:

• Crude to Chemical: Managing the conversion of crude oil into chemical products, optimizing yield and minimizing waste.
• Refinery Operations: Streamlining refinery operations to improve efficiency and reduce costs.
• Logistics and Distribution: Optimizing logistics and distribution processes to ensure timely and cost-effective delivery of products.

Challenges of Oil & Gas Enterprises

• Availability of Craft-Wise Planning and Actual Worked Hours: Difficulty in tracking and managing the availability of skilled labor and their actual worked hours, leading to inefficiencies and delays in project execution.
• Project-Specific Inventory of Material: Lack of visibility into project-specific inventory, causing delays and increased costs due to inadequate material management.
• Inability to Locate Equipment and Their Utilization: Challenges in tracking the location and utilization of equipment, leading to underutilization and increased maintenance costs.
• Lack of Traceability of the Value of Direct Taxes During the Asset Under Construction (AuC) Stage: Difficulty in tracking and managing direct taxes during the construction phase, leading to compliance issues and potential financial penalties.
• Master Data Synchronization and Duplicity: Issues with synchronizing and managing master data across different systems, leading to data inconsistencies and duplication.
• Governance of Master Data: Lack of proper governance and control over master data, resulting in inaccuracies and inefficiencies in business processes.
• Manual and Cumbersome Vendor Onboarding Process: Inefficient and time-consuming vendor onboarding processes, leading to delays and increased administrative costs.
• Lack of Systematic Setup for Refurbishment Processes: Inadequate systems and processes for managing refurbishment activities, leading to delays and increased costs.
• Lack of Real-Time Stock Availability Tracking: Inability to track stock availability in real-time, leading to stockouts and excess inventory, which increases carrying costs.
• Lack of Systematic Warehouse Management: Inefficient warehouse management processes, leading to increased operational costs and delays in order fulfillment.
• Non-Availability of Insights into Equipment Usage: Lack of visibility into equipment usage patterns, leading to inefficient maintenance and utilization of equipment.

Understanding SAP S/4HANA Cloud

What is SAP S/4HANA Cloud?

SAP S/4HANA Cloud is an intelligent, cloud-based ERP suite designed to help businesses run more efficiently and adapt to changing market conditions. It leverages the power of SAP HANA, an in-memory database, to provide real-time analytics and transaction processing. For the downstream oil and gas sector, SAP S/4HANA Cloud offers specialized modules and solutions that address the specific needs of the industry, from hydrocarbon management to retail fuel network operations.

Advantages of SAP S/4HANA Cloud for Oil and Gas

1. Real-Time Data Insights: SAP S/4HANA Cloud provides real-time data processing and analytics, enabling companies to make informed decisions quickly. This is crucial for managing the complex supply chain and operational processes in the downstream sector.
2. Integrated Processes: The solution integrates various business processes, including hydrocarbon production, maintenance, engineering, and planning. This integration helps streamline operations and improve overall efficiency.
3. Scalability and Flexibility: SAP S/4HANA Cloud is designed to be scalable, allowing companies to expand their operations and adapt to market changes without significant disruptions. The cloud-based nature of the solution ensures that businesses can scale up or down as needed.
4. Compliance and Regulatory Support: The platform helps companies meet regulatory requirements and industry standards, ensuring compliance with environmental and safety regulations.
5. Enhanced User Experience: With a user-friendly interface and intuitive design, SAP S/4HANA Cloud enhances the user experience, making it easier for employees to adopt and use the system effectively.

Benefits of Implementing SAP S/4HANA Cloud in Oil and Gas

Operational Efficiency

One of the primary benefits of implementing SAP S/4HANA Cloud is the significant improvement in operational efficiency. The platform's real-time data processing capabilities enable companies to monitor and manage their operations more effectively, reducing downtime and enhancing productivity. For example, companies can use the system to optimize their supply chain, ensuring that products are delivered on time and at the lowest possible cost.

Cost Savings

By streamlining business processes and reducing the need for multiple disparate IT systems, SAP S/4HANA Cloud helps companies achieve substantial cost savings. The integrated nature of the solution eliminates the need for separate systems for different business functions, reducing IT costs and improving overall efficiency.

Regulatory Compliance

The oil and gas sector is subject to stringent regulatory requirements, and non-compliance can result in hefty fines and legal issues. SAP S/4HANA Cloud provides robust tools for managing compliance, ensuring that companies adhere to industry standards and regulations. This not only helps companies avoid penalties but also enhances their reputation as responsible and compliant organizations.

Enhanced Decision Making

The real-time analytics and reporting capabilities of SAP S/4HANA Cloud enable companies to make data-driven decisions. By providing insights into key performance indicators (KPIs) and operational metrics, the platform helps managers and executives make informed decisions that drive business growth and innovation.

Improved Customer Experience

In the competitive oil and gas market, providing an excellent customer experience is crucial for retaining customers and gaining a competitive edge. SAP S/4HANA Cloud helps companies improve their customer service by providing real-time data on customer interactions and preferences. This enables companies to offer personalized services and respond quickly to customer needs

Case Study: Transforming with KTern.AI

A leading downstream firm based in Houston, Texas, recognized the need to transition from its legacy SAP ECC system to SAP S/4HANA. To achieve this transformation efficiently and effectively, they partnered with KTern.AI, leveraging its suite of tools to facilitate a seamless migration and modernization process.

The Challenge

The company was operating on an outdated SAP ECC system, which posed several challenges:

• Technical Debt: Accumulation of over 40,000 custom objects led to increased maintenance efforts and system inefficiencies.
• Complex Customizations: The presence of 620 WRICEF (Workflow, Reports, Interfaces, Conversions, Enhancements, Forms) objects complicated the system landscape.
• Innovation Constraints: The existing system's limitations hindered the adoption of new technologies and processes.

Recognizing these challenges, the company aimed to:

• Reduce technical debt by adopting a clean core approach.
• Streamline customizations to align with SAP best practices.
• Accelerate innovation cycles to remain competitive.

KTern.AI's Intervention

KTern.AI provided a comprehensive solution tailored to the company's needs, focusing on three primary areas:

Digital Clean Core

Code Generation & Automation Bot for RAP Model:

KTern.AI utilized its automation capabilities to generate ABAP RESTful Application Programming (RAP) code based on the Functional Requirement Specification documents.

This approach employed a wizard-like interface, guiding developers through relevant questions and generating the desired code based on their responses. The generated code was seamlessly integrated into the company's Continuous Integration/Continuous Deployment (CI/CD) pipeline, facilitating smooth deployment on the SAP Business Technology Platform (BTP). This assisted in developing 28 BTP applications, significantly reducing development efforts.

Digital Maps

Clean Core Business Case Generation:

KTern.AI conducted an in-depth assessment of the company's custom objects within the ECC core. The analysis identified over 40,000 custom objects, including 620 WRICEF objects. Among these, 190 applications were recommended for migration to the SAP BTP, aligning with a 'fit-to-standard' approach. Applications were categorized into three tiers:

• Tier 1: Side-by-side extensibility (190 extensions)
• Tier 2: In-app extensibility (147 extensions)
• Tier 3: Classical extensibility within the core, such as BADIs and User exits (211 extensions)

This categorization enabled the company to formulate a strategic business case for clean core adoption across four transformation waves.

Digital Mines

Optimized & Clean Operations Intelligence:

KTern.AI facilitated change impact analysis to ensure risk-free go-lives. The platform provided data-driven insights on change impact and release impact analytics, offering over 15 DevOps Key Performance Indicators (KPIs).

These insights helped identify redundant or obsolete components within the SAP landscape, enabling prioritized clean-up efforts for a leaner core system. Additionally, KTern.AI offered test fits and gaps analysis to optimize SAP testing, generating over 8,000 fits and gaps. Comprehensive assessments helped mitigate risks associated with customizations, ensuring adherence to SAP best practices and minimizing disruptions during system upgrades.

Outcomes and Benefits

The collaboration with KTern.AI yielded significant benefits for the company, aligning with the broader advantages of implementing SAP S/4HANA Cloud:

• Effort Reduction: Achieved up to 30% reduction in SAP BTP implementation efforts through automation, directly contributing to cost savings and operational efficiency.
• Technical Debt Reduction: Reduced technical debt in the S/4HANA core by 65%, streamlining operations and enhancing overall system performance.
• Accelerated Upgrades: Enabled SAP upgrade cycles to be seven times faster, enhancing agility and innovation capabilities.
• Cost Savings: Realized 35% cost savings in SAP landscape maintenance, optimizing resource allocation and reducing IT costs.
• Risk Mitigation: Ensured risk-free go-lives with autonomous enterprise release impact and data-driven change impact analysis, supporting regulatory compliance and operational stability.
• Testing Efficiency: Reduced time and effort on regression testing through insights on test fits and gaps, improving the overall testing process and ensuring high-quality system performance.

Conclusion

Through the strategic partnership with KTern.AI, the oil and gas downstream company successfully modernized its SAP landscape, reduced operational costs, and enhanced overall efficiency. This transformation enabled the company to focus on strategic initiatives and maintain a competitive edge in the industry. The case exemplifies how leveraging advanced digital tools and methodologies can drive significant improvements in system performance and business outcomes.