Oil and gas companies have to continue operating through the SARS-CoV-2 virus and the incidence of COVID-19 (COVID-19) pandemic. According to Cybersecurity and Infrastructure Security Agency (CISA) Director Christopher C. Krebs’ memorandum issued on March 19, 2020, oilfield servicing professionals are essential employees during this delicate time. That means accounting for the activities of this essential workforce becomes more important than ever. Payrolls for these essential personnel will need to be met, though cash flow is tight and salary cuts are possible. Those cost reductions flow through from the operators to the nonoperators, resulting in a notable impact on costs incurred by the joint account.
On March 23, Deanna Duell, leader of BKD’s energy industry contract compliance team, was interviewed in the Oil & Gas Vendor Audit Roundtable’s podcast, "The Tour Report," where she talked about remaining diligent with oil and gas vendors during this time of flux.
Oilfield servicing companies face an extreme challenge in meeting the cost pressures being placed on them by operators—yet they’re deemed vital in this difficult time. As such, it is crucial to open up communications sooner rather than later so issues such as collections for past-due invoices and creditworthiness may be addressed in order to establish expectations and requirements. Operators may be putting into place rebidding processes with their vendors, so understanding how that impacts oilfield servicing companies and making sure adjustments to price sheets and master service agreements (MSA) are taking place will help in adjusting your own company's personnel and supplier relations.
Now is the time for oil and gas operators to think about strategies for securing assets. In light of everything going on, it’s challenging to identify what belongs to the operator and what belongs to the vendor (keeping in mind vendor inventories may include operator-owned equipment). Well status tracking and controls is another challenge that will be important for authorizing vendor payments. Payment accuracy adds another layer of exposure to the joint account as operator costs flow through to nonoperators in the monthly billing cycle. For example, water hauling charges should cease when the well is not active. To avoid overcharges, communicating dates from operations to accounting and having proper procedures in place will be essential. Not having a full inventory when a well is shut in makes theft easier, so knowing the equipment serial number and location will assist in filing claims for insurance purposes.
As a result of COVID-19, budgets will vary drastically, and oversight of contracts and purchasing takes precedence. Accounting for critical infrastructure and personnel is vital during a time of crisis, and sound control measures for processing payroll and accounting for inventory will help mitigate risks and enhance efforts for compliance and cost-cutting measures. Without diligent oversight, the risk increases exponentially for the degree of high-value equipment losses and excessive cash outflow as a result of increased fraud and lack of controls.
BKD is here to help you navigate the post-COVID-19 environment with services that can augment your business needs and assist with asset protection measures and cost recovery strategies during this trying time. For more information, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.