Lower for Longer
The continuing resilience of oil production volumes - in spite of the weak price environment - continues to confound expectations.
This is creating 4 big challenges for the Oil & Gas sector in 2016:
- Timing/scale of an oil price recovery remains highly uncertain
- Management teams are struggling to forecast accurately, undermining financial stakeholders' confidence
- Large segments of the value chain are struggling to refinance forthcoming debt maturities or raise new money
- Work outs of upstream operations & vessels-based businesses are proving to be particularly complex due to contractual complexity
What can companies do?
- Implement self-help measures such as cost cutting, working capital optimisation and capex prioritisation
- Seek stakeholder support to buy time by amending/extending existing debt facilities, negotiating existing contracts or raising equity
- Investigate M&A options - although buyer appetite is sparse and bids are low
- Initiate contingency plans in severe situations