Cash in the Barrel: Working Capital Management in the Oil and Gas Industry

In the last five years, the oil and gas industry agenda has been dominated by a short-term challenge of structurally low oil prices and the longer-term specter of climate change, decarbonization of the energy ecosystem and increasing geopolitical tensions.

In response to these challenges, oil and gas companies have focused on:

• Cost-cutting and cost optimization
• Assessing their portfolio to identify, prepare and divest non-core assets
• Exploring new ways to innovate, whether from an engineering, business model, social or digital technology perspective                                       

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The increased focus on cash and working capital management has been an effort to grow returns on capital, deliver enough cash flow to cover investments and dividends and strengthen the balance sheet to prevent a downgrade in credit ratings. With the recent sustained period of cheap borrowing nearing its end and liquidity becoming tighter, the cost of cash is increasing, further compounding the need to optimize working capital.

Accomplishing such a goal can provide increased levels of cash, the cheapest source of financing. It can also derive significant cost benefits through reduced transactional and operational costs, lower levels of bad and doubtful debt and inventory obsolescence.

Today’s working capital performance still varies widely across the industry’s core segments and companies. While part of this gap may be due to variations in business models, this can also be attributed to the fundamental managerial differences on cash and process effectiveness.

While these findings show improvements in working capital overall in the last two years, we estimate that up to CAD$30b of cash remains untapped by Canadian oil and gas companies and overall CAD$230b in North America.

Connect with us                                  

 American Express

• Dwain Neckles, Vice President Large Market, Global Commercial Services 
  
• Peter Barnett, Sales Director, Global Commercial Services                                                            

Ernst & Young LLP

• Chris Stepanuik, Canadian Leader, Working Capital Advisory Services
• Lance Mortlock, Canadian Leader, Oil & Gas
• Terry McKay, Canadian Leader, Energy - Performance Improvement
• Sean Gunton, Transaction Advisory Services

This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.