Budgeting systems in an oil and gas exploration and production (E&P) company

Abstract

Purpose: The aim of this study is to acquire an in-depth understanding and appraisal of the budgeting systems employed in an E&P company by investigating its budgeting process, by determining the level of management participation in this process, as well as assessing the role of ERP software in the budgeting system. Design: Following a comprehensive analysis of extant literature on related topics, the research objectives were achieved by conducting six semi-structured interviews with key personnel, the data of which were analysed using two levels of analysis. Findings: The study reveals that for the last two decades or so, the Case Company has used a budgeting system that comprises a fixed budget and a forecast. In providing direction and a measure of control, the organisation is comfortable using this budgeting system, suggesting that it adds value and that it is highly relevant. Conclusion: Notwithstanding the valid challenges and criticisms of budgeting, the case company continues to successfully engage its budgets as an integral part of its operational planning, control and performance evaluation functions to achieve its strategic goals. This is achieved through a combination of both a bottom-up and top-down approach. Although ERP systems may not be perfect, they play a crucial role in providing relevant, accurate and timely information and reports that are essential for budgetary control. Value: This study provides a contribution to practitioners in the upstream petroleum industry and may also serve as a model to any emerging E&P companies in Malta.