$30 billion may be trapped in oil and gas balance sheets

Low oil prices, pressure to decarbonize and increasing geopolitical have dominated oil and gas tensions

As much as $30 billion of cash is untapped by Canadian oil and gas companies and an overall $230 billion in North America, according to an industry report.

“The Canadian oil and gas industry has been dominated by challenges such as low oil prices, pressure to decarbonize and increasing geopolitical tensions for the last five years,” Chris Stepanuik, EY Canada Working Capital Advisory Services Leader, stated in a news release. 

“These concerns, coupled with slow demand growth, are creating cautious capital allocation strategies — placing a lot of attention on both capital and operational efficiency to reduce costs and improve cash flow.”

The Cash in the barrel report, which is the latest in a series of working capital management reports produced by EY Canada and American Express, shows that increased focus on cash and working capital management can help to: grow returns on capital, deliver sufficient cash flow to cover investments and dividends, and strengthen balance sheets. 

With cheap borrowing nearing its end, and liquidity becoming tighter, the cost of cash is increasing and further compounding the need to optimize working capital, it said.

“Oil and gas companies have typically been quite slow to adopt and embrace working capital optimization and leading practices, but we’re starting to see a change,” said Dwain Neckles, VP, Large Market, Global Commercial Services, American Express Canada. 

“The industry as a whole has made significant improvements in cash conversion cycles in recent years — with the top gains in midstream, integrated and oilfield services sectors. We see that companies leading the way are those who create a cash flow-focused culture, increase performance visibility and implement process improvements.” 

Stepanuik said digital transformation can help generate value by enabling better and faster operational decisions, leading to greater asset utilization and reduced operating costs.

 “Technology solutions that aid in finding efficiencies and improve cash flow, will be catalysts for the success of the oil and gas industry today and in the future,” he said.

Mario Toneguzzi is a business reporter in Calgary.

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