In our previous blog, we presented blockchain as a welcome addition to the E&P landscape and added our voice to those extolling the value in baking data integrity from the ground up when re-engineering processes with it. In this article, we look at how a business can be reshaped, simply by having all business partners trusting the same data.
Trusted data is key to streamlining wasteful processes and reshaping how we do business together. The Economist in 2015 correctly identified blockchain as ‘the trust machine’. As the technology underpinning Bitcoin, it allowed organizations or persons with no particular trust in one another to collaborate without having to go through a neutral central authority. This capacity allows complex transactions to be completed more quickly, and at the same time, for companies to align on common interests and share risks and returns on new opportunities.
One company that is harnessing the shift in trust paradigm and advancing the ball on performance-based contracts is Data Gumbo (DG). This team’s solution elegantly aligns operators, rig owners and service providers on Key Performance Indicators (KPI).
Last week I attended the Oil and Gas Smart Contract conference. A demo from DG showed the use of their Smart Contract feature using drilling KPIs. The contract is prepared, negotiated and signed, all on their platform. Once signed, the contract is locked in an immutable distributed ledger (blockchain). This means all parties possess the same exact copy on the same network with no permissions to update it unless all agree. This alone is an improvement from the abilities of most current systems.
But the blockchain takes us further, it allows us to codify contracts and automatically trigger workflows, in what they call “Smart Contracts”. Once codified (and the data connections are put in place with the rig and ERPs), data from the rig can feed the codified contract directly, which in turn could trigger the release of payments. Notice, within this example, no invoices needed, no data reconciliation is needed, and there is no chasing after Accounts Payable or Accounts Receivable. That is needle-moving change for organizations that handle hundreds of thousands of payments per year.
With blockchain, this could be taken further, to “crypto assets”, but we are not sure if the industry is ready yet. A discussion for another blog, meanwhile check out Ziyen Energy, they are staying ahead of the curve. (https://www.ziyen.com/ziyencoin_future_currency_of_oil_industry/)