Canadian data company, GuildOne, has created the world’s first smart contract royalty payment system for the petroleum industry. The system is based on R3’s Corda blockchain platform. The development may also help reduce legal disputes.
The system is called Royalty Ledger and has already successfully executed an oil royalty contract settlement and payment transaction. This was done in conjunction with NAL Resources Management Limited, PrairieSky Royalty and ATB Financial, one of the leading regional banks in Canada’s oil-rich Alberta province.
People often ask what are the actual use cases for blockchain technology in the commercial world. It is true that the technology is not wholly mainstream yet, however, the shipping industry has already pioneered the use of smart contract and blockchain tech in relation to bills of lading and the tracking of goods across global trade routes.
Now, the oil sector has leveraged the tech to help address identification of ownership of oil and gas production rights and verifying that legally contracted royalty payments have been made to concession owners, or other parties to whom a royalty is owed.
Alberta holds vast oil riches in the shape of oil sands and multiple companies are involved in its extraction. Ensuring that the correct royalties are paid is essential to the smooth operation of the industry. Because oil is a physical good and because of the sheer volume and number of parties involved, tracking its extraction and sale – and then ensuring the companies involved pay what is required to the right parties – is not always easy.
Checking that all royalties have been paid using ‘wet contracts’, i.e. paper-based verification, is also a laborious and highly bureaucratic system that slows down business and may not always be effective in such an environment.
By assigning a smart contract to an oil consignment which establishes ownership on an immutable distributed ledger, which is then tied to a smart contract that will automatically self-execute the payment of a certain royalty to the designated party, it greatly ‘reduces friction’ and also helps to remove errors, whether accidental or otherwise.
In turn the reduction in errors and clarity in ownership, and a permanent and transparent record of the fulfilment of royalty agreements, which blockchain provides, should reduce legal disputes between parties.
NAL Resources Management CFO, Keith Steeves, explained: ‘This approach should primarily address any inconsistencies in interpretation of royalty rate and any disputes associated with this. This will significantly lower costs, improve efficiencies and improve the transfer of money in our industry.’
The company said that it believes: ‘Blockchain can help eliminate disputes [and provide] tremendous potential for the increased equity, sustainability, and transparency in, and between, all nations and their citizens.’
James Graham, President and CEO for GuildOne, added: ‘Distributed ledger technology has the potential to greatly minimise and ultimately eliminate resource and royalty-based disputes. The democratisation of these tools to all the stakeholders and communities can increase fair and equitable production of resources while initiating a more efficient operation model.’
David Rutter, CEO of R3, concluded: ‘Corda’s strength comes from its vibrant ecosystem of interoperable applications for finance and commerce. We are pleased to welcome GuildOne to our rapidly growing network of partners, harnessing the power of Corda to overcome the specific challenges faced by their customers.’
R3 is an enterprise software firm that has been working intensely in recent years to develop Corda, its blockchain platform designed specifically for businesses.