Is it more efficient and cost-effective for them to hire a third-party firm that specializes in the non-customer-facing functions of a business or to perform them in-house? These functions include tasks such as IT support to accounting. Data entry to record maintenance. Settlements and allocations to regulatory filings. These are basically any business functions that don’t directly interface with the company’s client base. For the purposes of this article, we’re focusing on the back-office accounting functions of a midstream company.
While this isn’t a new debate, it’s one that many midstream companies are re-evaluating as commodity prices have moved lower and the forecast is for little relief in the near term. This puts pressure on company management to find ways to operate their business in the most efficient and cost-effective manner possible. It’s a pressure felt by companies both large and small. Private and public. Start-ups and well-established.
At the core of the debate is whether these third-party firms have more knowledge expertise and process efficiencies built into their operations than the companies looking to hire them. When this is the case, the benefit to the company is two-fold. First, it provides an overall reduction in operating costs as seen through an improved operating model and a reduction in the required workforce. Second, and more importantly, it allows company management to focus its resources on efforts that will grow the company’s footprint and, ultimately, its revenues.
To help make the best decision of outsourcing versus in-house, companies first need to understand the complex world of midstream accounting and how outsourcing firms like Opportune LP can assist company management in implementing a more cost-effective operating model.
Midstream accounting is often considered a “black box” to organizations where volumes are entered, sales statements are received, and some complex system of calculations occurs in the middle that no one tends to worry about as long as the key reports align. The reality of midstream accounting is, however, that this system of calculations includes a myriad of complex measurements, contracts, allocations, and valuations that have a significant impact on a company’s financial statements.
By adhering to industry best practices and relying on in-depth process knowledge, an expert midstream accountant can mitigate risks inherent in performing these calculations through their understanding of the hurdles involved (including asset-specific nuances) and the streamlining of the processes required. Third-party outsourcing firms like Opportune LP build their staffing models to include these types of industry experts and, as such, are able to offer this knowledge base and operational excellence to their clients.
At the heart of the debate for outsourcing, midstream accounting is the following three focus areas: process and asset knowledge, communication, and software familiarity. Each of these is discussed in more detail below.
“Midstream experts are able to build systems from the ground up should the need arise.”
Understanding these challenges and how a third-party outsourcing company helps mitigate them allows a midstream company’s management to best answer the question of outsourcing versus in-house. It provides the backdrop for creating the most efficient and effective solution to accurately account for their midstream assets. After all, midstream accounting doesn’t need to be a black box that no one within the company understands when a seasoned, knowledgeable outsourcing firm like Opportune LP can shed some light into that box. This creates an asset and process structure that a midstream oil and gas company can embrace and utilize to their benefit.