Perspectives

Amy Chronis: Doing the right thing for others

As published in SHALE magazine

While Deloitte’s client base is diverse—including clients from all segments of the business community—energy-related businesses including oil and gas companies are a major focus area for the office in Houston, commonly referred to as the “energy capital” of the world. SHALE Oil & Gas Business Magazine caught up with managing partner Amy Chronis, Deloitte LLP, in early April to talk about life, family, where she sees the business going in the future, and what it’s like to be responsible for a key division in a large, global organization like Deloitte.

A diverse organization with a broad array of expertise

Please describe for our readers the array of services Deloitte’s Houston practice provides for its clients generally, and to the oil and gas business specifically.

We are the largest professional services organization in Houston. We have over 2,500 employees now, who work in one of four business lines: Tax, audit, consulting, and risk and financial advisory. We serve across a wide range of industries and solutions. Those industries include everything from health care and life sciences, to information technology, to retail.

But of course, we have many practitioners who focus on all segments of oil, gas, and chemicals. Oilfield services, upstream, midstream, downstream, mining, and metals are all part of what we call our “Oil, Gas and Chemicals” practice.

One of your firm’s key service areas is in the mergers and acquisitions space. That is a kind of “up and down” part of the oil business. Talk about the challenges of managing that aspect of Deloitte’s practice during the recent rush by companies to gain or expand footholds in the Permian Basin.

There are always ups and downs in this business, and there will be continued volatility. The recent downturn in oil prices has created a need for financial prudence and discipline in capital spending.

As a result of these pressures, oil and gas companies want to do three things:

  • Return value back to the shareholders vs. more M&A activities
  • Focus on internal measures to strengthen their financial situation
  • Focus on their strategic growth value proposition

We take pride in being able to offer those solutions. If you look at the full year of global M&A activity in 2018, we would say the deal value was flat and there was a low count in that area of activity as compared to 2015, but the bright spot in those numbers was that the US accounted for two thirds of those deals, which was a record high.

Consolidation and optimization were the key drivers in M&A activity, particularly in shale regions. If you look at the Permian Basin, it had record deals in 2018 worth $25.7 billion and dominated the M&A space. The Permian deals we saw were two to five times higher than in other basins.

The southeast Oklahoma/Anadarko Basin continues to develop rapidly. Most of the investment there is from small, privately-owned producers backed by seed capital and private equity players. M&A activity in the Marcellus/Utica Basin in 2018 was slower than in 2017. Companies in that basin are focused on drilling more wells to meet the demand in the growing natural gas market.

What about the midstream and downstream business? Has that been an active area in the M&A space? How do you foresee that developing in the future with all this midstream buildout happening in Texas and other parts of the country?

As a result of the activity we are seeing across the oil, gas, and chemicals portfolio, we decided two years ago to merge our oil, gas and chemicals practice. Instead of being in two separate groups, we decided to merge them together because of some of the things you mention here.

We keep a pulse on market conditions and the business environment and we realized we could help our clients enjoy more immediate synergies because we saw the super-majors re-establishing their chemicals business; we saw existing petrochemical companies seeing an increase in demand due to their feedstock positions; and we saw traditional chemical companies growing at a much faster pace as they focused their business models on meeting unmet needs.

Innovation and pressures around capital investment and cost controls are driving more M&A activity.

We haven’t seen the same kind of recovery with the service companies that the super-majors have enjoyed yet.

In the oil and gas industry, Deloitte obviously provides services for the majors and large independents—what about smaller independent producers? Do they also make up a significant portion of your client base?

Oh, absolutely. A huge portion of our business is what we call “middle-market,” which is the majority of our portfolio. This includes a lot of players, and we have seen a lot of consolidation in that space. When the master limited partnerships (MLPs) first took off, we were dominant in that space and we will continue to be innovative and bring planning ideas, especially around tax structuring and planning and preparation for deals on the table.

As part of all that, especially with the middle-market, we have what we call our “total M&A solution” that helps clients at key stages of the transaction life cycle, no matter their size.

So, to your point, some of the smaller players need outside resources to help them leverage advanced digital capabilities that are quickly advancing, help with alliances, and help with deep executive advice to deliver increased value throughout not just the M&A life cycle, but throughout their entire value cycle.

So, we have functions all across Deloitte engaged in those solutions and helping companies of all sizes.

The management of risk is another of your firm’s key offerings. The area of “cyber risk” gets a lot of media attention these days. As the oil industry adopts an expanding array of new technologies, does that, in turn, lead to increased cyber risk? And tell us how Deloitte helps companies manage that risk.

There is no doubt that it definitely does lead to increased cyber risk. As the oil and gas industry continues to introduce more digital innovations, it must continuously adopt new cybersecurity measures commensurate with the growing threats they’re facing.

These advanced threats aren’t going away; they’re just going to keep coming and it becomes almost a matter of not if, but when. Companies must focus on what we call “persistent resilience.” It’s not a one-time thing; it has turned into a perpetual need.

We don’t see that changing. What we do see is that we and others are getting far more sophisticated in taking an enterprise-wide approach to help organizations across all industries manage cyber risk. Most of the technologies and solutions that we bring help across all industries. We try to bring a real understanding of business complexities that create roadmaps to help our clients navigate the uncharted cyber landscape ahead.

Our goal is to help to ensure that our clients’ connected environments are safe, secure, and resilient in the face of these threats. One application in particular in shale is the growing "internet of things" in terms of the sensors that are becoming prevalent on so much of the equipment.

Everything from cameras on trucks out in the basin, to the drilling equipment, to the monitors. All of those things, every time you add one of those embedded sensors, creates a cyber risk.

Another huge part of Deloitte’s business is helping companies manage financial risk—talk about the kinds of things you offer in this key area.

Clearly, risk comes in all forms, and financial risk is foundational to the reason why we exist. That is our mission and our calling as a noble profession to help underpin the world’s financial markets.

If we are not targeting and continuing to audit risk, then we are not doing our jobs. We have to invest quite a bit in innovative and new technologies, and we are doing that. I almost wish I could start over in my career now because it’s a lot more fun now than when I started (laughs).

Back then I’d be on an audit and a client would have 1,000 contracts. So, we would pick 100 as an audit sample and examine those. But today, clients have thousands of contracts, and we can look at all of them using advanced analytic tools that we have, extrapolate all of the data, and find things that really weren’t easily visible to the human eye before.

That transformation is going to help us to perform far better-quality work and bring more value to our clients. And this goes through all of our client service areas in terms of risk.

In tax, we work to ensure our clients are in compliance with the rules and regulations, and thoughtfully plan for the future. Our consulting practice, and risk and financial advisory practices also help address risk.

Since you mention it, let’s move to taxes, another of your firm’s key offerings: What significant impacts have the Trump tax cuts had on the oil and gas industry? How does Deloitte help companies manage and take advantage of those impacts, both positive and negative?

Of course, I have to preface this with a reminder that I am not a practicing tax professional (laughs).

But tax reform was a game-changer for many of our clients. Almost all of our clients were impacted in some fashion; how they were impacted varies and has a lot to do with each client’s business operations. The IRS is still developing the administrative guidance and rules around the new tax law. But we believe it provides a lot of opportunities—while at the same time creating a great deal of uncertainty.

We have teams focused around each of these areas to make sure we are helping our clients understand the new rules and can navigate them in as proactive a way as possible.

Clients with global oil and gas operations, in particular, are most impacted by the new rules. The new rules resulted in new tax concepts that didn’t exist before—some are impacted in a positive manner, others in a less beneficial manner.

Our domestic clients are impacted by the new rules limiting the deductibility of certain interest expense. Similarly, our private company clients that operate their businesses in a non-corporate context are keenly-focused on the new rules that call for a lower tax rate on their qualifying operations.

In summary, I’d say that there are big impacts. It impacts everyone a little bit differently, that it’s a personal journey for each company.

It’s been almost two years now, but pretty much everyone in Houston was impacted by Hurricane Harvey and has stories to tell about their experiences in the wake of that terrible storm. Are there any stories you would like to relate here about the experiences of Deloitte and its employees during and after that historic storm?

It’s interesting—we did a town hall with our people about a year ago and I asked everyone if they wanted to offer up what the most meaningful moments had been for them at Deloitte over the previous year. Almost to a person, they mentioned how life-affirming it was to see how not just Deloitte, but the entire Houston community responded to that storm.

I think it’s amazingly heartwarming how we came together as a community, in the business sector and Deloitte specifically, to help each other through that terrible time. We mobilized in a helpful and collaborative way to do everything we could to help our employees and their families.

Over 80 families here at Deloitte were displaced by Harvey. One thing we did was to take part of our office space to create what we called the “Deloitte store,” where we brought in items that were hard for people to find—things like generators, clothing, basic home improvement tools for the immediate cleanup tasks, and people just dove in to help as needed.

In the immediate aftermath of the storm, we had people, especially out in the memorial area, in their canoes, kayaks and whatever they had, helping their neighbors get out of their homes to safety. People took in animals, took in other families. Deloitte’s security office was amazing at helping us find all of our people and make sure they were safe—we had several people who actually needed to be rescued. So I couldn’t have been more proud to be a Deloitte partner during that time.

It’s hard to point to just one story, but it was just heartwarming how many instances we saw of people doing the right thing for one another.

Read the full cover story at shalemag.com