Blockchain adoption to enable Oil & Gas business-model efficiencies?

Oil & Gas industry players are seemingly in favor of adopting blockchain to enable business-model efficiencies. There are several use-cases that play a crucial role in the pillars of the PermianChain platform. (1) digitizing metrics and the investment process (2) addressing the errors and invalid transactions in energy trading (3) streamlining logistics and tracking sources of oil. Altogether, blockchain as a business-model enabler can result in efficient financial transactions allowing universal operating methods.

Let us take a high-level view on some of the many use-cases where blockchain can be enable increased efficiency in Oil & Gas business-models:

Digital Disruption

Simultaneously improving productivity, optimizing cost, as well as dynamic remote asset monitoring is only possible if the ‘smart oilfield’ technology is deployed. It’s to provide every critical data continuously in real time without any downtime. The ideal solution is to connect all the systems and hardware platforms across the operations of drilling, exploration and production facilities. It has to ultimately fulfill the purpose of delivering useful data to Real-time Operation Centers (RTOC) and thereby enabling operators to make better decisions quicker. On the private blockchain this data can be a valuable asset that the entire stakeholder community can benefit from, as the immutability of this data and its transparency brings into full effect the accountability of each key person.

Multi-Transportation Product Tracking

The midstream oil and gas segment operate more like a utility business in nature — i.e. it is asset heavy and highly regulated. The “asset heavy” quality of midstream is what makes blockchain technology so applicable in regards to supply-chain tracking and transparency. Crude oil and natural gas are most often transported in the midstream segment by rail, cargo ship, and — most frequently — huge networks of interstate pipelines.

Currently, proprietary regulations and information silos obfuscate information from stakeholders, requiring intensive, manual effort to track down reliable data about a certain time and place. Time-stamping with blockchain and smart contract can be a solution for route gaps, smuggling and other issues that face the lack of transparency.

Performance-Based Contracts

Performance-based Contracts (PBC) are contracts that are decided upon, executed, and compensated against, based on the completion of a task. Today, PBCs are challenging for two main reasons. First, it is difficult for groups to “attest” to their work being done in order to fulfill the contract. Second, it is difficult for majors and NOCs to align short- and long-term goals among the various oilfield services needed during the lifecycle of a well. Collectively, everyone involved on an oilfield has the long-term goal of maximizing resource output from the ground. Individual companies and groups, however, have more immediate goals that relate to their separate contracts. When incentives are misaligned, inefficiencies emerge, safety is compromised, and profit is affected. Blockchain-based PBCs in the form of Smart Contracts are an opportunity to align short- and long-term goals among all stakeholders to support a more profitable, safer, and more efficient well.

Land Rights on the Blockchain

Land rights, royalties, and division interests are a huge part of the upstream oil and gas segment. Before excavating or drilling, companies must determine who exactly has ownership over the land — and the minerals underneath — in order to receive permission and direct payments. State to state, city to city, and district to district, ownership and rights are managed and recorded differently. The process of determining land rights requires laborious, extremely manual work in courthouses and record offices all over the country, flipping through books of deeds, wills, and land sales. Lost, misplaced, and duplicated records are common, and require complex legal processes to bypass.

Tracking land rights and ownership on a blockchain platform is one of the most highly-visible use cases of blockchain technology in general. For oil and gas companies, blockchain-based rights records would provide a single, clear, immutable record of who owns what land and what minerals. Since records are collected and maintained by governments, this use case of blockchain technology would also require the involvement of many different government offices. Oil and gas companies, however, can apply this use case internally, without significant government involvement. If one company is selling the rights — or part of the rights — to land with oil fields, reservoirs, etc., it can record that sale/lease on the same blockchain system. Within the network of oil and gas companies, therefore, there could exist a clear record of intra-company land and mineral right transactions.

Conclusion

The oil and gas segment have a lot to benefit from blockchain technology, from efficiency to transparency to much more. Unique among oil and gas processes, upstream requires the involvement of dozens of stakeholders, all of whom rely off the data of others. This sort of wide-scale, multi-party coordination is what blockchain technology succeeds so well at optimizing.