Blockchain Technology Officially Enters the Oil and Gas Industry
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Oil and gas companies can rejoice, as Ethereum-powered blockchain technology is officially being adopted into a major industry. The oil and gas industry is generally considered slow to change, however, since the oil glut that drove prices to record lows starting in 2014, hydrocarbon companies have been adapting at a rapid pace to survive.
Separate Moving Parts Align into One
Ethereum-based project developer ConsenSys and Paris-based, cash-to-order-automation company Amalto are developing an Ethereum-based blockchain, joint-venture called Ondiflo. This joint-venture would provide digital solutions for order-to-cash processing. The digitized process will improve production and hauling efforts in a synchronized environment producing benefits such as improved scheduling and dispatching, accurate measurement of discharged fluid volume, precise invoicing, significantly reduced revenue leakage, and zero to very few coding errors.
From Paper to Digital
Once set up, Ondiflo would be based in Houston, Texas, the heartland of the U.S. oil and gas industry. The company would use Ethereum’s smart contracts to develop a ticket-based automated system to streamline and enhance the order-to-cash processes related to oilfield services contact services in the up-, mid-, and downstream sectors of the industry. These processes are still being executed by processing physical paperwork. Additionally, data verification through proof of work would be another benefit. Transactions could be settled in only a matter of hours, compared to days. Furthermore, it could reduce the number of potential points in which errors could occur. Once the technology is set up and the process adopted, companies would see an overall efficiency increase in conjunction with increased profits.
ConsenSys founder Joe Lubin sums up the power of the blockchain:
As one of our first ventures into the oil and gas supply chain industry, Ondiflo will offer a solution where all operators and service companies can benefit from digitization, automation and the seamless exchange of data and immutability of their records, made possible by the Ethereum platform. Ondiflo will deliver efficiency to processes, which today are still largely manual and paper-based, like field ticketing or bill of lading, and are ready for the blockchain.
Facilitates Accounts Payable
In the oil and gas industry, companies must deal with a high rate of days sales outstanding (DSO). This period is usually around 90 days from the order date to the payment date. The longer a company goes without collecting the balance due, then the more chances the company has to fall into a cycle of cash-flow disorders. In this case, the company is selling on credit to its customers and maintains a high debt-to-accounts-receivable ratio. In dealing with DSO rates, a happy medium is to be desired, because a rate that is too low, indicates that a company is too strict with its credit and may drive away potential customers.
What’s the next step for Ondiflo?
A stakeholder’s meeting is set to take place on 15 February 2018. After this meeting concludes, a plan will be set for the joint-venture to follow and launch Ondiflo. More developments on this status will surface after this date.
Featured image from Shutterstock.