Functions and Objectives

Introduction

This paper covers dTECH's dTEAM application: an Oil & Gas Trading and Marketing, Scheduling, Distribution, Inventory, and Accounting package. The application addresses the real needs of running a Downstream Oil & Gas products business or major Downstream segment (i.e., distribution center), the economics involved and attendant economic risks for meeting supply and/or demand, or carrying products under changing market conditions.

The application streamlines many workflow processes for users from Marketing on through Accounting. The package alerts users based on business rules stored in the database. It allows managers to understand their net positions, by customer, or on up to the overall business exposure, for a specific period.

Overview of dTECH

dTECH has had a traditional objective of providing "a single source solution for complete business automation." Today this objective is expanding the company’s efforts to include very comprehensive Business Area applications. The solution dTECH offers with their dTEAM application is a fourth generation example of a Business Area solution for a wider enterprise: Downstream Oil & Gas. This application builds heavily on dTECH's experience in software analysis, design and production in a networked, client-server environment. dTECH exploits many aspects of current database technology, combined with significant network experience, to deliver solutions that incorporate business process know-how which streamlines many functions within the Trading, Marketing, Distribution & Accounting areas of a Downstream enterprise or portions of it e.g., Distribution Terminal.

dTECH has five locations in Louisiana, Oklahoma, and Saudi Arabia. dTECH addresses networking, client-server, PC platforms, specialty applications, programming, and implementation services.

General issues addressed by dTECH's dTEAM Package

dTECH's package provides a client-server application that addresses three main areas of a Downstream operation: Marketing, Distribution, and Accounting petroleum products. Each of these areas is discussed in this section. Examples are provided to demonstrate how dTECH 's package can be applied to specific processes or activities within these three main areas.

Some of the general issues of how a Downstream Oil & Gas operation function is discussed in this section. The Downstream operation generally starts within the Production portion of the Energy Cycle. It often begins at the actual gathering of Oil & Gas. For a full Downstream operator gathering is followed by transportation, which leads to refining of products, and finally marketing of products. Other operations can focus on a portion of this larger cycle e.g., Distribution Terminal or Transportation Fleet

Diagram 1

The Downstream operation is characterized by a very general model, which can be rendered down to a single working element. The general model can take the form of a state space model with flows representing product movements and nodes presenting various operating units along the cycle, e.g., Refinery, Terminal, etc. The single working element could be considered as a generic node which may have inflows, outflows and/or possible conversions performed within the node, e.g. Refinery, Blending (involving conversion), Terminal & Storage Site (not involving conversion).

Diagram 2 shows a number of nodes, e.g., Gathering Unit, Refinery, etc., and a number of pathways products can take while being transported from one operating unit to another. Normal operations would have many, many products and a number of flows between nodes. Refer to Appendix A for a list of sample products. Products flow through various flow mechanisms: pipeline, ship, rail car, barge and truck. (The Marketing Area is where commercially identifiable product, i.e. WTI, enters the Downstream operation either for sale, exchange or onto a refinery, see Diagram 2.)

Diagram 2

This single node model is somewhat of an over simplification, however it highlights a fundamental process diagram that can model more complex systems. This simple model also provides a means to extend the problem from one of understanding fluid flows to embracing other flows that affect not only the technical issues of process operation but also the economics of the process.

Inflow(s), Outflow(s) and Conversion(s) can definitely be hydrocarbon product streams (see Diagram 3). dTECH's package allows these to be identified in chemical groups. It also allows tracking the individual flow components by transaction with the associated cost for each component in the product movement volume e.g., ethane. Conversion(s) is an intermediate product that is directly related to a Process/Inflow/Outflow combination.

Outflow                                  Conversion                               Inflow

The economics of operating the entire Downstream cycle or a portion of it are key to profitability. Margins are very thin in these businesses. This suggests that prices/costs of each product, at each node in the cycle should be tracked. Prices/Costs of each channel should also be tracked. Carrying Costs for products also need to be tracked. Frequently terms like $/BBL or cents/gallon are used as yardsticks. These ratio style measures require combined financial and operational data to be able to measure business effectiveness. See Appendix B for additional material.

Frequently terms like "Net Back" and "Give Away" are all part of measuring these operations. "Net Back" is essentially the difference in price at any point in the product cycle as compared to any other point, prior, in the product cycle. "Give Aways", are frequently associated with missing volumes or a higher specification product being substituted for a lower product at the time of sale or exchange possibly due to product availability problems.

Examples of specific activities/processes in the three main areas of Marketing, Distribution, and Accounting follow:

Areas covered by dTECH's dTEAM package address each of the above except Promotion/Advertise and Dispatch. Data is validated and conditioned for transfer to "GL", "AR", and "AP".

Workflows within dTECH's Package

Workflow Principles within dTECH's Package

dTECH's package has been designed based on considerable "modeling of the major functions in large, integrated, energy companies." Many Downstream companies have or are presently reviewing their business processes. Most have realized their information flows were very cumbersome, some have already embarked on significantly reducing the costs of processing transactions. Frequently, stepwise change has been demonstrated in areas like; Order Entry, Invoicing and Exchanges.

dTECH's package delivers solutions to help Downstream operators lower the cost of doing business. The package coordinates information from many users, in a number of operating areas. It provides techniques that closely track individual petroleum product transactions. Users can then review specific transactions or summarize transactions to gain perspectives on larger issues or questions concerning business activities.

A few examples of how the package can assist users in a Downstream operation or a specific business area of a larger operation. Seven examples are identified with work flow or business issues that range from fairly specific to rather broad.

1. Assisting with contract management.

2. Providing credit checking.

3. Managing pricing and taxes at a transaction level.

4. Tracking a product movement.

5. Invoicing an entire days set of transactions.

6. Assessing risk exposure for all transactions for a Downstream operator.

7. Working with Financials.

1. Assisting with Contract management.

Contracts and managing contracts are fundamental to how dTEAM works. Many commercial techniques are evident in the Contract engine of the package; e.g., customer details, contract terms (both boilerplate and specific), pricing details etc. What is particularly helpful is that the Contract engine supports communication with many office procedures/practices. For example, contract terms can be managed using a word processor then brought into the database for use within a specific contract or group of contracts. Output from the Contract engine can be again to word processors and/or FAX. Historical contract versions are maintained for recall. (See Appendix C)

2. Providing Credit Checking.

Credit Checking is provided for within dTEAM. When an individual transaction is requested, the user can identify the customer's position before executing a trade. Via rules within the database a transaction cannot be made if it would exceed the conditions established within the contract for the particular customer. Approval procedures must be met before proceeding otherwise the transaction cannot be authorized.

Financial data can be shared between dTEAM and a Financial package to update each customer's financial position. Individual transaction details are used with dTEAM to monitor credit levels as trades/product movements take place.

3. Managing pricing, taxes and fees at a transaction level.

Pricing is managed in dTECH's package via a very general mathematical approach, which provides excellent functionality, both on a detailed and aggregate level. The pricing engine provides the detailed methods to identify a single priced item via contract details or data feeds (i.e. NYMEX crude oil quotes). This allows a pricing element to be defined. Mathematical processing can also be performed on a pricing element. Individual pricing elements can subsequently be combined, via common or separate mathematically treatments, to provide an aggregate (or composite) pricing element.

In this way a hierarchy of prices can easily be defined for use by anyone on the system. This hierarchy can readily address very simple pricing formulae up to quite intricate composite pricing elements.

4. Tracking a product movement.

Individual product movements are identified using the package. Start dates and Stop dates are tagged to each product movement. Via the database, an individual product shipment can be tracked to know its movement(s) over time.

As part of setting up the package, detailed nodes and flows can be incorporated into the database definition. For example, tanks, pipelines, valves etc. can be identified within the database. Product movements can then tracked based on which product moved from which node to which other and in which time frame.

5. Invoicing on entire day's set of transactions.

Invoicing is flexible within the package. Invoicing can be done on an individual product movement or some set of product movements. Frequently operators in large distribution centers want to handle invoicing en masse. For example, all product movements to an operators' five largest customers are invoiced daily. Each customer's individual transactions can be aggregated for the 24-hour period and invoiced accordingly. (See Appendix C). Invoicing can be done on an approximate price , or right after price terms are satisfied. For example, in the case of product movement before the end of the month, and the price is computed on the "average monthly high."

6. Assessing risk exposure for all transactions for a Downstream operator.

Today Management wants to know the total profit/loss exposure for a period and the relative amounts for various segments of the business. Risk segments can be identified and current summaries can be produced in an on-line time frame to allow action to be taken during the week or month instead of when it is too late to take action. Transactions can be placed at assumed or extended prices when the average price for the month is not yet known. Mark-to market methods are allowed, without touching or damaging pricing values, used for invoicing or official accounting purposes.

All Buy & Sell transactions can be assessed from the individual trader level on up to the enterprise level for a full Downstream operation. Business rules often apply when managing risk and conveying level of risk to be assumed by a seasoned individual/operation compared to a novice individual/operation. Since the package tracks individual transactions it is possible to provide a user with a detailed/summary information of net exposure. Via business rules set in the database by an operator, users can be limited to the amount of exposure they can carry.

Product positions are calculated with actual cost value or anticipated value at each FOB or terminal. Market exposures are computed on-line to current forecast values. Profit/Loss can be summed on-line to let management and marketers know the net effect of all trading for the concerned time period. Product positions owed to or due from customers are available on-line and for monthly reporting. The package handles cross product commitments or exchanges.

7. Working with Financial Packages

dTEAM tracks detailed transaction information for product movements. Each individual transaction requires many particular pieces of information to be carried into the Financial package to describe the transaction. dTEAM formats all of these journal entries and bundles them for transfer to the financial application. Both accounting and operational data, for each transaction, are available for compilation and transfer to the Financials. This transfer is determined by the customer, their emphasis on financial Vs operating data, or both, to be stored in the GL and working within their Chart of Accounts.

Database techniques within package

dTEAM effectively exploits many features of current database design. Stored procedures are a key aspect of this package and they are put to solid use throughout. One of the benefits of this approach has been in minimizing the network traffic of this client-server application. The speed of the database is used to check/validate user inputs/activities.

Stored procedures are used to maintain data integrity, implement business rules, maintain audit trails of changes to data, decrease network traffic, and maintain data security. By using stored procedures instead of embedded SQL calls, data access is restricted to authorized users of those procedures. By optimizing the stored procedures, the data sets were reduced to give acceptable response times over wide area network (WAN).

The database design allows for creating scheduling data when a contract is created. This coordination gives economic value to companies of all sizes. Another example is when product movements and the required prices are available, invoicing preparation activity is launched.

User response to the package

The user response to this package is often measurably higher than with similar packages that address Petroleum Marketing, Distribution and Accounting. Some of the main responses from users are that dTEAM offer:

- an integrated approach that provides a very practical means of tracking large numbers of transactions.

- consistent product functionality across keys areas. The basic package menu structure is:

File: customer, asset, product (demographics)

Marketing: contract, risk management, physical inventory, scheduling, and movement

Prices: reference/market listing, tariffs, internal, taxes

Accounting: invoicing, cash application, customer status

- excellent work-flow considerations

Opportunities

The dTEAM application has been developed based on customer requests to manage Petroleum Marketing transactions. The initial system was implemented for Amerada Hess and dealt with trading petroleum products. The present system handles a very broad set of petroleum transactions: this is because of the flexibility provided by the contract, pricing, distribution, movement & inventory engines within the package. Product positions are calculated with actual or anticipated costs. Customer balances are available on-line or for reporting, e.g., monthly, if not hourly.

Opportunities clearly lie with providing this package in the overall Downstream Petroleum arena or portions of this industry area, e.g. Distribution Terminals. In larger environments the dTEAM package would interface or integrate with Financials. The combined functionality of joining these two packages would greatly enhance running one of these businesses. Information about the business would be more precise. The net result would be an improvement in margins in what is already a very "thin" margin operation.

For operators who wish to use the package separately the benefits are just as positive. Being able to track, accurately, each product movement and aggregating that information on up to knowing their "over-night" position is an extremely valuable tool. For Distribution centers handling tens of thousands of transaction (or more) each month, this package offers a clear advantage of "knowing where you are at any point in time".

NGL Marketing and Trading businesses can also use the package. The package handles the requirements of large NGL operations from gas plants through fractionation and pipelines, to market or storage. Scheduling, movements, invoicing, and physical product positions are handled and tightly related to contracted conditions. Pricing is done from the pricing engine, which is tied directly to the contract, however pricing history can also be used as part of the decision making. Other dTEAM features that specifically aid NGL Marketing are:

- Term, Evergreen, and Spot Contracts can be viewed on one screen.

- Complete Inventory Management on the Product/Chemical level.

- Enhanced distribution options

- Integrated Wholesale / Transportation System

- Fractionation Process model

Appendix A: Petroleum product list

- coker, naptha, and gas oil

- coke

Appendix B: dTEAM and financial packages

The detailed information basket, containing financial and operational data, is validated via rules stored in the database before being stored in dTEAM as a transaction. (Users can use the tools of dTEAM to review and/or report summary or individual transaction data.) Individual or summary transactions can be passed to the Financials as required. These are sent either real-time or an intervals.

Appendix C: Application Package Attachment