ARO Reporting Process for the Oil & Gas Industry

Full Transcript

ELIZA WITH PANDELL Okay good afternoon, everybody and welcome. My name is Eliza and on behalf of Pandell, it's great to see you online here today for our latest Leadership Series webinar. We are talking about the ARO Reporting Process [Asset Retirement Obligations] and we're very lucky to have three very talented and wonderful speakers with us today.

Amber is the VP of Operations at XI Technologies, with 25 years of experience in oil and gas data and software. Amber is a seasoned leader with an impressive portfolio of experience with both the technical and client services teams at XI Technologies.

Jennifer is the VP of Business Development and as a former landman with over 20 years of experience in oil and gas data and software. Jen brings her industry experience to the leadership team where she champions XI’s leading-edge products in the areas of A&D [Acquisitions and Divestitures], liability management, and drilling research.

And as I mentioned we have also a guest contributor today and that is Lidiya who is a Senior Exploitation Engineer with Harvard Resources. And Lidiya has over 15 years of experience in the oil and gas industry with a focus on asset development and exploitation, joint venture, operations, A&D, regulatory compliance, and liability management. So, I will go ahead and pass the floor to you.

JENNIFER Thank you so much to Pandell for inviting us today. We're always happy to link arms with other technology companies in a collective effort to streamline clients’ workflows and in turn to help our industry be more efficient.

So, we all know that we're doing more with less these days and given the right tools, paired with solid workflows, technology can play a big part in that. So, we're going to keep this really high level, we'll try to today and somewhat product agnostic but in full transparency, we do believe we've solved some of the issues that we'll highlight with tradition additional spreadsheets. So, we will give you some examples we won't go into too much detail about our ARO manager software but at the end of this, you should expect to have a better understanding of what's involved, regardless of how you choose to solve it, whether it's through our tools or through building your own.

So, I'm going to do just a really, brief introduction. So, who is XI? We've been a trusted partner to the Canadian oil and gas industry since 2004. Actually, earlier than that, but our name XI was 2004. We've actually been around since 97 or 98. So, we're both a software and a data company, which means we leverage data both public and proprietary, and online technology to provide tools for competitive analysis, A&D scoping, asset planning, business development, drilling, operations, regulatory compliance, and risk management. So, we're fully web based which means no IT implementation and you can work from anywhere. So, essentially, we provide research analysis tools, we help smooth workflows, and we drive productivity in a number of industry areas.

So, for ARO which is our topic today, we saw a need. We knew that asset retirement obligations are insanely relevant right now and we're experts in using data to help our companies work through tough problems or time intensive workflows. So, Eliza did a much better job of intro, so I'm going to mostly skip through this. But just I'll say that Amber's going to do most of the talking today. I'm just going to interject here and there to add some color. But yes, we're very excited to have Lidiya here from Harvard Resources. She happens to be a client of both XI and Pandell. So, we're going to lean on her for some practical real-world advice.

So, agenda for today. We're going to go through some high level ARO workflows. So, we know that ARO may not exactly be in your wheelhouse but it's a really, good example of a process that involves some complex spreadsheets. So, we'll go through some issues with spreadsheets and look at how technology can help rethink things for efficiency. As well as how it can add to the end result. So, I'm going to turn it over to Amber, but I'll interrupt here and there.

AMBER Fantastic, thank you very much Jen. So, the definition of ARO is Asset Retirement Obligation, which is an accounting term for estimating and accounting for the costs associated with abandoning and reclaiming assets at the end of their useful life. It's a line item on your corporate liability sheet.

The importance of accurate asset retirement obligations is that it ensures financial transparency, compliance with regulations, and responsible resource management. The application in the oil and gas industry is particularly significant due to extensive infrastructure with wells, facilities, and pipelines, as well as other environmental liabilities. The need for accurate estimations because of the long lifespan of the assets is essential and the potential impact of environmentally of those assets. So, for that precise ARO calculations are rather essential.

JENNIFER Yeah, so I think Amber is going to give some more background on the next slide but essentially ARO is a huge factor in our industry because of the Redwater case. It was there before but that's when it really became really, important. It changed the bank’s profile, or their risk profile file and it makes it important for all parties: buyers, sellers, lenders, and government to have a handle on potential costs. So, I think we'll talk about mandatory spends elsewhere if we have time.

AMBER The LLR program [Licensee Liability Rating], believe it or not was introduced in the early 2000s which is somewhat crazy to think about since it's 20 some odd years later. And then the Redwater case came about in about 2016 which really disrupted the whole liability space for everybody. We've always had to deal with ARO and liability management but as previously mentioned we did see an uptick in its importance both with the regulators and the lenders based on this Redwater case. As well as the aging infrastructure of our oil and gas environment that we have here now. So, this timeline really outlines where we've recently come from.

And we can go down a whole rabbit hole of this Directive 88. In fact, we actually did a presentation with Burnet Duckworth and Palmer to talk about Directive 88 and how opaque it is and trying to sort of see behind it. But that's a whole different ball of wax that we could get into in another, maybe another Pandell presentation. But we do think that it is important to talk about ARO and technology in particular.

JENNIFER Yeah, and I think the other important thing with this slide is that everything changes. So, just when you think you've got the new regulations figured out, there's a whole new set, a holistic approach, whatever it might be. This is what we're hearing from our clients especially the Juniors, is that this is their number one issue. The uncertainty, lack of transparency when it comes to transferring well licenses. Are security deposits going to be required? Will the AER, will they process the transfers? How do you compare your yourself against your peers? Things like that.

AMBER Absolutely, so let's go into sort of the trouble that we've seen to date, is the trouble particularly with spreadsheets. Most of the clients that we've sort of converted over have been on spreadsheets. There are other methodologies out there. So, the trouble though is that frankly spreadsheets are about a 40-year-old technology. So, there, so it is an old paradigm. You're thinking on an old paradigm when you're using a spreadsheet. And we think that there's a better way to sort of think and process the information in the data.

JENNIFER Yeah, and don't get us wrong, we love spreadsheets. We use them all over the place here, there's a time and a place. We think that ARO is just not quite the right place for a spreadsheet anymore, it's just become too complex. So, it's not necessarily that it's old, it's just the wrong tool.

AMBER Exactly. So, let's talk about the pros of using Excel, and then the cons of using Excel. So, pros, you know you've got your familiarity, your flexibility, your cost of software. Your cons, you guys can read these, that you know there's a lack of audit trail, error, corruption, sharing, cost issues. Let's go through some of these in a little more detail.

So, with Excel being the dominant tool it is widely used and familiar to most professionals making it accessible for ARO management tasks. Most employees are going to have some level of proficiency with Excel which is going to reduce your learning curve for implementation. So, the flexibility and customization of Excel allows for custom templates and formulas that accommodate various ARO calculations and reporting requirements. Users can tailor spreadsheets to their specific needs which incorporates additional functionalities as necessary. It is cost effective. It's typically included in standard office software suites, which makes a cost-effective solution particularly for smaller companies or projects with limited budgets. There is a minimal upfront cost associated with using Excel as it does not require any specialized software licenses or infrastructure but the cons to us really outweigh that.

So, for instance it's error prone, there's version control issues. You've got manual data entry, and formula manipulation that increases your risk of errors in Excel spreadsheets leading to inaccuracies in your ARO calculations. We actually haven't seen a single implementation yet that didn't have errors in the spreadsheet.

There's some version control issues that become challenging as multiple users may update and save different versions of the same spreadsheet, which is going to lead to inconsistencies. There's limited scalability. Excel may struggle with being able to handle large data sets or complex calculations that are required for comprehensive ARO management. As the volume of data and complexity of your ARO calculations increases, your Excel performance may degrade which is going to lead to slower processing times and potential system crashes.

There's a lack of integration and collaboration. It just lacks those built-in collaboration tools for seamless integration with other systems or collaboration tools making it difficult to share and update ARO information in real time. You know which is going to limit your collaboration among your team members. It's going to be hindered by having to manually share and consolidate Excel files, which is going to cause inefficiencies and communication gaps.

So, I guess this is a good question for Lidiya, have you found this to be true? Did you find that moving from a spreadsheet to a database did improve your efficiency of your organization?

LIDIYA Oh yes, absolutely it has significantly simplified managing ARO needs for us especially as our asset database sort continued to grow. It has significantly reduced time spent for updating data. We used to do it all in Excel spreadsheets, but it has become really, cumbersome and very complex. So, XI ARO is really, handy and really reduces time spent updating data, generating reports, for different needs, for financial purposes, for insurance, for internal needs, and A&D activities as well. So, yes, it's really helped us in a big way.

AMBER Fantastic thank you so much. So, again Excel does offer that familiarity, flexibility, and cost effectiveness but you do have to consider with that if you're going to use Excel you have to implement a robust quality control measure to minimize errors and ensure data accuracy. But realistically as ARO requirements evolve and businesses grow you should evaluate the scalability of Excel and consider transitioning to a dedicated management software program.

So, the other thing that we've seen used other than spreadsheets is actually using the regulator's calculation. So, just pulling it from the DDS [Digital Data Submission] system and presenting that as your ARO calculation. This is going to have five key issues with this. One is that it's going to understate your reclamation costs. We now understand that the AER does not add in a remediation cost to their reclamation, so that's going to significantly undervalue the cost of your reclamation.

It's going to understate certain abandonment liabilities such as older wells, and sour wells. It actually interestingly enough overstates your abandonment requirements in particularly easy low risk areas such as Southeast Alberta. We've actually noticed when we've done comparisons that those are actually quite overstated with the AER's methodology.

There's working interest calculation implications. If you think about it the regulator just deals with an operated interest. There are definite concerns of making sure that your working interest is calculated so that those stakeholders really understand obligations as well. Failure to accurately assess working interest obligations can result in an underestimation of ARO liabilities if you're a working interest partner in a lot of different assets. And it can potentially disrupt your stakeholders regarding cost sharing responsibilities.

As well facilities are often over licensed in the past, which is something to consider. So, a lot of the facilities are actually overstated. And then there's scheduling and discounting challenges. ARO calculations are typically involved discounting future cash flow to present value based on expected timing of abandonment and reclamation activities. The AER uses very opaque crossover date to mock up a financial liability. That's one of the issues with Directive 88 that we've come across. So, in conclusion utilizing the AER method for ARO calculations can lead to underestimation of reclamation costs and potential under or overestimation of abandonment liabilities.

JENNIFER So, I think that's giving us a good idea of why you definitely want to have more than one cost model and with a spreadsheet that becomes cumbersome or prone to error. So now what?

AMBER So, let's take a look at a typical workflow. We typically start at that year, quarter end ARO value. That's sort of your starting point at the beginning of the year. You then move into yearly inventory changes with buying and selling assets. As well as yearly inventory changes with abandoning, reclaiming, and drilling.

And then you move into updating your cost model based on what you found to be abandoned and reclaimed. You can use your AFE such as from your Pandell AFE program to update your cost model. You can apply those costs and then do your discounting and reserves. Which leads you right back to your year or quarter end value again.

Lidiya, am I missing anything inside of that full cycle of the ARO calculation?

LIDIYA No, I think it covers it all. No, it's great.

AMBER Perfect, thank you.

JENNIFER And we see this as an iterative process, so there's ins and outs at all levels. You know without not knowing the Pandell systems personally, but I know that there's places where an input from your land system, you know an export from your AFE. So, these would all have implications here. Would you agree with that Lidiya as well?

LIDIYA Yes, yes it does.

Thank you. Okay, so how can we streamline for a different result. Realistically what we're talking about is we what we're recommending is that you take a well data management approach or WDM. You'll hear me use WDM a lot or well data management approach to liability management, which is really centralizing your license list into one repository with no silos. It's applying a program over the top to compensate for that and it's you know we believe that web-based is best. So, let's talk a little bit through that.

So, we think that establishing a single repository for license data, which eliminates silos, ensures centralized access to critical information. You're going to centralize your facilities for comprehensive data management of your liabilities which is going to streamline your compliance and reporting process. Putting an application over top of this is going to supplement the database management system which is going to address the liabilities associated with Excel-based programs. This program is going to enhance your data accuracy, your integrity, and your usability providing robust platform for liability management and decision-making.

Why do we recommend a web-based solution? For enhanced accessibility, collaboration, and scalability. Web-based platforms enable real life access to data and analytics from any location which is going to facilitate remote work, which in this day and age is critical, and collaboration among stakeholders. You're going to decrease your resource requirements by centralizing your license list and implementing this WDM solution. You don't have as much manual entry, you can pull in from different programs, you can really start automating and streamlining your process for efficiency gains.

JENNIFER So, obviously we've just described what our ARO manager does but agnostically you could build your own database as well. So, whether you're talking ARO manager or your own you know giant infrastructure we'll deal with the concepts that can be applied throughout.

AMBER Exactly. So, this slide is particularly important, so let's just reiterate a couple of the benefits again. You're going to have enhanced data integrity. Centralizing and standardizing of licensed data improves data integrity and consistency, which is going to minimize your errors discrepancies and enhance accurate assessments.

It's going to improve your compliance in reporting. You can generate timely and accurate reports demonstrating compliance with regulatory standards and stakeholder expectations. It's going to streamline your operations. So, it's going to allow for reduced manual effort which is going to increase your efficiency in managing liabilities.

It's going to enhance your decision making, so you're going to have access to real-time data for analytics, which is going to empower your stakeholders to make more informed decisions. Again, scalability and adaptability. You're going to be able to accommodate changing business needs. Changing regulatory requirements, as Jen mentioned earlier, everything in our industry changes, so it's going to help with all of those different functions.

JENNIFER And correct me if I'm wrong, but we've seen clients go from like an ARO process of weeks to down to a couple of days. Whether it's again moving from spreadsheet to database, or would that be accurate?

LIDIYA Well absolutely. We have gone from needing to spend days updating data and generating reports to literally half a day or a few hours. And yes, managing database is actually way easier than managing the spreadsheets. And some spreadsheets can have as you know some companies have thousand of wells. Here it's a with a click of a button, you can update everything. It’s really, easy, so that has simplified our time and our task and our time pretty, significantly.

JENNIFER Always the key.

AMBER Exactly. Okay, so one of the other things that we highly recommend, so even if you're using a spreadsheet or you're using some other methodology in order to do your ARO analysis, we highly recommend splitting the cost model from the licenses so that you can update them separately. This allows you to compare cost models to perform risk analysis. It allows you to update your cost models yearly or more throughout the year in-order to reflect market changes. It allows you to isolate those changes in your costs versus changes in inventory, which is a requirement of your ARO calculations at the end of the day. It allows you to be more adaptable. You can use proprietary costs where you have them, an XI's cost model or another cost model, the AER's cost model, where you don't have them so that you can start looking over the fence at different opportunities as well. So, really updating your costs separately from your licenses is particularly critical.

JENNIFER Yeah, so most of our clients that are doing this in a spreadsheet or are doing it through VLOOKUPs. Which yes, if you've got some Excel experts, they work great only up to a certain point. They can get really complex depending on you know the nature of your assets. We've seen lots of errors in VLOOKUPs, so that's one note to be careful of.

AMBER So, again I do want to reemphasize that separating it allows you to separate from your costs from liabilities. It lets you compare cost models to perform risk analysis. It lets you do yearly or more regular updates. It's going to isolate the changes. It's going to allow for adaptability and flexibility. There's just so many benefits from this split between your cost model and your license list.

JENNIFER So, Lidiya I think you've got two or more cost models if I remember correctly.

LIDIYA Yes, that's right. We do have a number of cost models actually. And where it comes really, handy is when you need to have a custom model built for different assets, maybe in different provinces, or with different ownership, and also for A&D purposes.

Sometimes when you look for acquisitions and divestures you usually evaluate the models that are provided to you and those are based on AER estimates. But if you know our company can estimate more actual closer to actual costs, they can customize that model and easily just run different model and compare it to the estimates and have a better understanding of what the actual liability looks like. That's what we do as well.

So, we do run internal models for different assets. We also have AER based estimates those can be also customized or changed. And that just provides you flexibility when you are comparing different models for different purposes, and different assets.

JENNIFER And would you use Pandell AFE program to help update those cost models? Is that your typical workflow?

LIDIYA That would be great. Yes, if we could have the AFEs tracked within XI ARO that would really simplify tracking of the actual cost spent in a certain asset, and update our cost model, and therefore have, you know, more accurate predictions for the future liabilities.

AMBER Excellent, that's a great development opportunity for us. Okay, so let's here, I'm going to give apologize here's our total plug for our software, which is talking about our cost model. So, we have created a standardized cost model. It is more realistic we believe than the AERs. We utilized a four-year study of actual costs across the Western Canadian Sedimentary Basin [WSCB] on wells and facilities in combination with different expert input.

We did template our cost model on the back of the AERs, but we have delved much deeper into expert opinion to get a much better picture of the true costs to abandon and reclaim within the Western Canadian Sedimentary Basin. So, we did use all of these experts that you see here with facility engineers, agrologists, reclamation managers, etc. to address what the actual costs in the basin were. And we like to think we got fairly close in most areas but again we're never going to necessarily touch your actual costs. So, what we do recommend is that you use something like ours to augment where you're maybe not as familiar with the area and want to be able to look over the fence.

JENNIFER Yeah, and the ideal situation, as Lidiya mentioned, is you've got multiple cost models for different scenarios whether it's A&D, or internal planning, or reporting, or communication with your bank, or your auditor, so having the ability to switch those cost models really, quickly is key.

AMBER Exactly. So, we're going to get into the six key benefits of using a well data management type system for your ARO and how it's going to enhance your accuracy and efficiency.

So, our first graph is comparing models. So, this is a graph from our software, but this could be any sort of reporting out of your well data management. And it's this is really talking about when we discuss comparing different cost models with your same license list. So, the purpose of this is obviously to do risk analysis. It's essential for evaluating the potential impact of cost assumptions on the liabilities and financial performance.

By comparing different cost models, you can assess the level of uncertainty and identify key risk factors that are going to be influencing your liability estimates. You're going to do use this for a comparative analysis approach. You can conduct a comparative analysis on multiple cost models to understand variations in liability estimates. You can use this for a scenario-based analysis, so you're going to want to involve testing different cost scenarios and evaluating their impact on liability estimates.

Again, you're going to be able to identify key risk factors, so market volatility, fluctuations and commodity prices, inflation rate changes in regulatory requirements, technological advances are going to affect this, and supply chain disruptions. What we've been seeing lately, is that as commodity prices increase your rigs that were being used to abandon and reclaim licenses are now being utilized for more drilling, so your costs are increasing over time.

So, I've just zoomed in here so that we can really see what this kind of looks like. You've got you've got different costs, different abandonment and reclamation costs going on here, with your alternatives. So, again a robust risk analysis and comprehensive cost model analysis is going to instill confidence among your stakeholders including investors, regulators, and your customers. So, stakeholders are reassured by an organization's proactive approach to risk management and commitment to transparency and accountability.

So, then benefit number two, is really isolating that change history. So, what we're showing here is a project from 2018 to a project in 2019. So, you've got some deleted. So, those would be wells or facilities that you may be sold out of your portfolio. You've got the same, so from the previous to the current, and you've got what's changed. And what we've done is, changed some working interest assumptions down here, so that so that you've got a change value. And all of these values are going to be very important to be able to pull out to put into your financial ARO package.

So, again it allows you to isolate your change history which is going to give you enhanced transparency and trust. It's going to facilitate regulatory compliance. It's going to give you improved decision-making capabilities. It's going to streamline your audit process. And it's going to give you continuous learning for improvements over time. So, isolating change history as a learning tool to identify trends patterns and other areas for improvement in cost estimation methodologies.

JENNIFER So, anything here you want to add Lidiya? Do you guys find that you've got a ton of changes, or do you do go through a more rigorous report than this?

LIDIYA We do actually. We run it on a quarterly basis, and it really helps to track your changes and updating you know an accrue for that purpose as well. So, it does happen quite often here in the office. And it also helps working with the financial department and help them understand and know of all the changes that have happened in our assets.

AMBER So, benefit number three is the ability to increase communication between departments. You're removing the black hole between your finance team as Lidiya was just saying, your finance team and your asset liability and abandonment team. These teams often work sort of almost separately. Where you your asset and liability and abandonment team work on the assets and liabilities and then hand off that spreadsheet to finance. And you know that communication can be inefficient, but it can be made more efficient with proper technology. So, communication can be facilitated between the divisions, and it can be more iterative in its approach.

JENNIFER And I think this is where we've identified some other areas where we could integrate more with Pandell. Lidiya, anything in particular that you think we should look at.

LIDIYA Again, I think that having ability to update the actual costs, and that's of course through the AFE because those are tracked in the Pandell system, and having ability to link them between XI ARO and AFE Pandell would be really, helpful. Then you can see the actual pictures. So, you can have the forecast, and you can see the actuals, and better understand your needs. And with the again continuously changing model and now that companies have to face mandatory spend, etc. you can better plan for and forecast your future liabilities.

AMBER So, benefit four is talking about building information from your data. So, when you have this sort of robust database with a program over top of it you can build reports as well out of that data.

So, what we're showing here is just a really simplified, easy, quick report that's just a total count of your licenses. So, you know in this case we've got 8,767 total gross licenses and on those gross licenses there's 13,036 wells. But what's important to think through, instead of really looking at this slide, is leveraging data for insights. So, organizations can harness the power of data to extract valuable insights and inform strategic decision-making processes. By analyzing organizations can identify trends, patterns, and correlations that are going to provide actionable intelligence.

Integrating your data sources is critical because there's diverse data sources impacting ARO. So, by being able to sort of integrate these you're going to be able to get better insights and faster insights, and more actionable intelligence.

So, the goal is always to build information from data. To generate actionable intelligence that drives informed decision making and strategic initiatives. And then again, we've sort of talked about it already at length which is the continuous improvement and iteration. So, you're going to continuously refine and improve your costs to get better results. You're going to be able to adapt faster to changing things, like mandatory spend and be more predictive in the future.

AMBER Benefit number five, sort of builds on that benefit number four, which is then being able to do C-suite and stakeholder reporting. So, if you're able to get the better reports, you're going to start to be able to present to your audience and the stakeholders a lot cleaner and more efficient.

So, you start to understand the retirement obligations, to answer questions about acquisition opportunities for instance. So, you've been able to set up a cost model. You're going to be able to predict, if when you're looking over the fence at other potential opportunities. You're going to be able to predict what your ARO will be for those opportunities, which is going to be essential in what price you're going to pay for those opportunities for instance.

And this is another report that we've kind of created for stakeholders. So, this I apologize it's very difficult to see, but this was really created on the behest of one of our banks that uses our product to be able to really get an accurate estimate in real time of active and inactive wells. As well as abandoned wells, your totals, your active versus inactive facilities, as well as your pipelines. We didn't actually pull a pipeline data into here, but you certainly can.

JENNIFER Yeah, and as Amber mentioned, this was requested by one of the banks but I'm guessing a lot of you, if you are working in finance, you'll this will look familiar. It's kind of the standard that most banks like to report, so hopefully we've saved a bunch of time. This is a click of a button versus you know this is something that you would have normally had to spend days preparing but if it's just a summary of what's in your database then it's always updated with the click of a button.

AMBER So, again another benefit of this whole well data model system is to become more predictive. We've kind of implied that in a lot of the words that we've used to date, but you can start to predict your retirement schedule. You can start to adjust your corporate program based on that model to gain cost benefits. And you can start to understand your retirement obligations to divest of assets appropriately. That's going to be very key. So, let's just look at becoming more predictive.

Here's just a quick graph that schedules out your abandonment and reclamation costs over a number of years. We go from 2018 here, all the way to like 2068 for instance. And then you know exactly what costs are coming up, you can become more predictive. This is going to help drive that minimum spend requirement as well, at the end of the day.

So, this is just our wrap up now, which is again data driven liability management system is going to help you isolate your cost models. You're going to be able to track your change history. You're going to be able to report better. You're going to have better access. You're going to have better communication throughout the company. You're going to be able to do better risk analysis. You've got a better audit trail. It's more predictive. You're going to be building on your information.

There is cons. The cons are your learning curve. There is inertia in trying to get change and change management to get people to switch over. That learning curve can be quite difficult in some companies. There is also a con with that initial auditor. As I said, we haven't done a single spreadsheet implementation that hasn't had some mistakes and hasn't had to deal with auditor changes at the end of the day. And so, you may have to do adjustments to align with past estimates and just that implementation.

JENNIFER Maybe before we go to Q&A, is there anything that we've missed Lidiya? Anything that you want to add to any of those.

LIDIYA I just want to add that being able to run different reports, especially for non-operated assets where you can have a track of gross versus net, with a click of a button has really simplified things in our office here. So, it's great to have one kind of standardized report that is recognized by the banks, different financial institutions, you know auditors understand it, and know it's really, great.

ELIZA WITH PANDELL Wonderful, thank you so much Amber, Jennifer, and Lidiya for that presentation. You've given us a lot to think about and some exciting ideas there to empower people to gain some efficiency in their workplace. We do have time for a couple questions.

ELIZA WITH PANDELL Okay, at what point do potential errors and inefficiencies of Excel become too costly for an organization?

AMBER Yeah, excellent question. You know transparently, a small company that only has up 10 to 15 wells is just you can manage that easily on a spreadsheet. There's no point in really looking much further than that. But what we have found is that the sooner you get onto a data management system in some ways the better because there is that inertia of trying to deal with change management at some point in time. And once your systems are too heavily embedded, switching over becomes very problematic.

JENNIFER Yeah, and not just internally with users but also externally with auditors, and we've kind of touched on all of that. I know we've got one client that has started with us right from the beginning because they just said I never want to build an ARO spreadsheet ever again. So, although this program might be quite robust, as Amber said for a 10 well company, it just sets things up in a good way to set you up for success and growth. Whether it be growth through acquisition or organically.

ELIZA WITH PANDELL Right, ideally growth is on everyone's horizon right, so it makes sense to do it while it's potentially easier before you get in the depths.

ELIZA WITH PANDELL The next question is do organizations track pipeline AROs?

LIDIYA Absolutely, yes. Well, we do track. And I think where it is very important when you're the licensee of the pipelines. So, on the side when you're not the licensee and you're in a non-op position you may choose not to, but you still want to kind of understand what kind of liability you're looking for abandoning all those meters of pipelines. So, it does help knowing that. And it is very easy to do when you're the licensee and using XI ARO for that. It is also very simple.

JENNIFER Well and I guess that's a really, good point. At the moment, there's no regulation that says that you need to track those or submit those but as we mentioned things change. Who knows what's coming down the pipe. That was a really, bad pun. (laughter)

ELIZA WITH PANDELL I think that's a good. (laughter)

JENNIFER Sorry, that was really, bad. If you can have it there and only turn it on and off when you want it, without having to redo your spreadsheet or you know redo even your database system. We think that's best practice to have it and only use it when you need it, if it's easy to do so.

ELIZA WITH PANDELL We'll sneak one more in here and then we'll probably wrap it up. Have you encountered issues where working interest was not correct and what ramifications did it have?

AMBER We have for sure. We have some very interesting implementation projects where the working interest has been incorrect. In one situation that I can think of, we actually had a client who hadn't — the transfers hadn't gone through properly with the board. And so, we were showing a lot of operated assets that they said we don't have rights to those anymore. And they actually ended up — it ended up that they the transfers hadn't gone through properly and they had to clean all of that up with the board. So, it put a huge obligation on them or would have put a huge obligation on them had they not caught it and done those updates. That was one particular instance that we had.

There's also just you know, understanding who has working interest on your assets is critical to being able to coordinate you know who pays for what at the end of the day. And the board is starting to look more and more closely at those working interest obligations, so that is it is critical to kind of get that. And I think this is another place where Pandell's land system would really tie in well. That you know being able to use that to get a more accurate picture of your working interest is critical.

JENNIFER That would be really, good if you had one project that's imported directly from Pandell's Land system and another one that was just taken from ours, which is reading government data and then compare them. That would be pretty, effective.

The other spin on this question and I don't know if the author of this question meant it from an A&D perspective or from an internal perspective. But if you meant it from an A&D perspective, we are able to provide some working interest that's above and beyond just operated. So, in a traditional mapping system you could do a search on the operator, but as Amber mentioned, it's really, important to have those other working interests. So, we're not saying that we'll get it right all of the time, but we'll get it more accurate than just doing an assessment based on operator. So, we go through environments, unit agreements, tying wells to leases. All of that happens in the background to come up with a working interest that allows you to do that from an A&D perspective.

AMBER Yeah, and Lidiya did you have anything to add?

LIDIYA Yes, usually we do have a number of non-operated properties that working interest is very important. And actually, it's one of the reasons why we chose to switch to XI because updating those working interests has become much more, easier and simpler having XI. However, we do see sometimes working interest come through wrong or they're not updated. And those you just usually operator knows, or non-operator knows in what areas you need to adjust them. So, I wouldn't say would have caused us any big problems. But yes, usually if you're aware of that, you will catch it.

ELIZA WITH PANDELL Well, I think we'll wrap it up there. Thank you very much for your time today. It was really a great presentation and thank you to everyone in the audience for hanging out with us this last hour. Once again, Amber, Jennifer, and Lidiya thank you for your time. It has it's been wonderful to have you join us at this leadership webinar.