Oil and gas firms are sacking workers and putting their salaries and pensions at risk when they should be running their businesses more effectively, says a firm of top consultants.
Accountants PwC take the UK oil industry as an example and claim that rather than cutting jobs, they could save £20 billion and make more profits simply by releasing working capital tied up in their balance sheets.
PwC argues the oil and gas industry is facing a long term malaise as prices drop and they need to become used to running efficient businesses when oil is priced at $50 a barrel rather than $100 a barrel.
Worldwide, says the firm, oil and gas firms have an estimated £217 billion locked away as working capital that could be switched to cash flow by savvy firms.
The firm recommends oil and gas companies should carry out a thorough business review and identify how to release cash and develop long term strategies to remain profitable.
Quick fixes
Alison Baker, oil and gas leader at PwC, said: “Cash flow is the life blood of business and the oil and gas industry is no different from any other company.
“They need to run lean and efficient businesses at today’s oil prices rather than flounder looking for quick fixes that are not going to happen.
“If they did, they could tap into cash resources that they already have, buy time and properly fund new and existing projects.”
PwC explained that the operating efficiency of oil and gas firms varies across the world.
Revenues have collapsed by 20% in the first three months of this year, compared with 2014.
Negotiating muscle
However, net working capital ratios in Australia are much lower than elsewhere, while those in Africa are the worst.
The firm’s report alleges oil field services companies have higher working capital balances than exploration and production companies.
“The big producers have the muscle to negotiate better deals and can set better payment terms,” said Baker.
“Cash will be critical for these companies to keep their businesses going until oil prices rise again, and that could be some years down the line. Meanwhile, contract rates and cash flow are going to suffer.”
