ACCA shares four focus areas for O&G businesses
A new report from ACCA (the Association of Chartered Certified Accountants) outlines key focus areas business leaders in the oil and gas sector need to master in this volatile and competitive period.
Faye Chua, head of futures at ACCA says after analysing market conditions and taking the views of a range of key strategic players in the sector, four key areas of focus emerged:
- Growth Management
Identify and postpone projects with a high degree of uncertainty. Be especially ruthless with any at the early stages of development which can be killed without much fuss.
Seek partners to share in the risk – and of course, reward, of projects. If you can, explore opportunistic growth via acquisition in areas with room for consolidation, for example oilfield services.
- Cost Management
Concentrate your asset sales on those not central to long-term strategy as much as possible. Organisations with a strong core focus are always better prepared in times of extreme stress or volatility.
Where redundancies are inevitable, manage them carefully to account for skills-gap impact, and ensure readiness for future growth when the oil price rebounds. Re-negotiate discounts with contractors to manage service costs and ongoing expenditure.
- Funding Management
In the near term it can often all be about survival but do not lose sight of a credible growth story for the longer-term.
To give your organisation the best chance of attracting funding, ensure the security of your current income stream, even if it is reduced. That stability is key to ensuring there is a consistent stream of income.
It is important to model the impact of rising interest rates on sourcing bank and debt funding. Seek a realistic picture as oil prices cannot be modelled on a safe, upward trajectory to pay for higher rates with future income as they have been in the past. As minimising risk and exposure becomes critical, explore non-debt options for funding. In short, private equity funds are going to be your friends.
- Managing externalities
Your organisation should aspire to a clear and respected voice on key sector issues such as the advocating role of government, whether via regulations and global transparency frameworks, or tax incentives to support reduced revenues. On a similar note, the inevitable short-term fire-fighting should not come at the expense of the long view. You should also be looking at on-going evaluation of strategic issues such as climate change policy (COP 21), and its implications in the near and longer term.