?Outsourcing information technology and operational accounting functions has become a popular strategy for start-up and fast-growth oil and gas companies. This is especially true in today’s environment where staffing shortages for experienced oil and gas professionals is the norm.


Instead of hiring and managing staff, and purchasing and maintaining accounting software, many companies hire a third party to manage these functions and responsibilities. If executed well, these arrangements reduce costs, conserve capital and allow a management team to focus on its core strategies of growth and building shareholder value.


While there are a number of solution providers in this space, they are not all created equal. When hiring a firm to outsource an E&P company’s back-office processes, management is putting its trust in the outsource provider to have the people, processes and technology available to meet the company’s needs. Customers should perform careful due diligence to ensure the vendor choice results in a successful long-term partnership.


Here are seven critical questions every company should ask potential outsourcing providers.


Does the outsourcer have enough scale to meet the company’s current and future needs? In today’s upstream marketplace, most E&P companies have access to large pools of capital and A&D activity is at its peak. Once a potential acquisition is identified and closed, the new assets must be integrated into existing operations quickly and efficiently.


The outsourcing partner should have the bandwidth and capacity to transition any size acquisition into their business environment. The provider must have a solid track record for converting large data sets.


In fact, the provider should have a dedicated team that focuses on data conversions and asset integration. If growth and acquisitions are in the company’s future, ask each vendor for examples of how they managed rapidly growing companies or transitioned large, complex acquisitions for their customers.


What is the experience level of the outsourcer’s staff? The quality and experience of staff is a big factor in the partnership’s success. Remember, the provider will become the company’s back office so its staff becomes the company’s staff.


Ask how many accountants and CPAs the firm employs. Also, ask how many years the senior team has been in place. Are these the types of personnel the E&P company would hire for itself? This stability and level of competency is critical in the provider’s ability to manage customer relations and maintain satisfaction.


What kind of investments is the vendor making for the future? Oil and gas accounting is specialized and unique and is driven by a cyclical market. Make sure the provider is focused on this segment and is committed to it for the long-term. Vendors pay lip service to this point, so it is important to ask what kind of specific investments the company is making in its people, processes and systems to assure long-term customer success.


Some examples of important investments include systems, disaster recovery processes, staffing and an annual SAS 70 audit.


Does the outsourcer own its systems or license them? When an outsourcing firm does not own its accounting platform it introduces another variable and additional risk into the equation. First, if the customer wants to change its relationship with the outsourcing company and migrate some or all of the business responsibilities in-house, it will typically have to deal with licensing arrangements with the software vendor. This can create additional costs and complexities.


Second, if the outsourcer licenses its software from a third party, it does not have much control over the platform’s future. The outsourcer is at the mercy of the vendor and those relationships can change. Conversely, when the outsourcer owns its technology platform, it has much more flexibility in how it can structure customer relationships, retain more control over its costs and deliver superior service.


What is the breadth of offerings that the outsourcer provides? One of the big wins of outsourcing for any early-stage or growing company is gaining immediate access to pre-established, proven systems and processes. Some providers in this space have staff members dedicated to data conversions, data-room due diligence, joint-venture auditing and tax consulting.


What other services beyond basic transaction processing can the outsourcer provide? Does the provider own and market complementary software solutions like mapping, engineering or document-management solutions? Does it own and market the ERP system it runs? Integrated product and service offerings such as these can eliminate IT headaches and decision cycles, and keeps the E&P company’s management focused on core strategies.


Does the outsourcer provide an integrated document-management system? In today’s outsourcing world, transparency and access to information are key criteria in vendor selection. Document management means more than just access to scanned images. Rather, a useful document-management solution supports collaboration between the outsourcer and customer through intelligent document routing, multiple levels of approvals and access from any personal computer.


The right document-management system combined with well-mapped processes also helps the outsourcer maintain Sarbanes-Oxley compliance by giving it the ability to document all approvals of invoices and show a process map for any type of transaction.


What type of reporting tools does the outsourcer provide? The biggest question for a customer is how to get data out of the system. The ability to access the E&P company’s data easily and efficiently is key to its long-term satisfaction in an outsourcing partnership. Take some time to understand what types of standard reports the outsourcer provides on a monthly basis. But more importantly, understand what ad hoc reporting tools are available. The reports and tools must be easy to use and highly accessible to your management and engineering teams. Reporting is an area to spend time on during your due diligence.


Outsourcing can be very successful with the proper due diligence. Outsourcing back-office processes can be a big win for oil and gas producers that want to streamline operations and keep management teams focused on key strategic goals. The vendor marketplace continues to evolve and producers have a number of options from a vendor perspective.


By investing the proper time and effort in the up-front due-diligence process, oil and gas producers can ensure they pick the right partner to manage this important part of their business.

George R. Moody is business-development director for P2 Energy Solutions in Houston.

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