The current unprecedented collapse in worldwide oil prices means that pressure will be felt by companies operating or contracting in the oil & gas sector in a number of areas:
- oil companies will likely seek to extend supplier terms, creating a liquidity squeeze that will ripple down the supply chain;
- the negative impact will hit cash first, significantly before it impacts on reported profits. The liquidity of key suppliers, customers and other third parties will have an effect on oil companies and other companies in the supply chain;
- potential delays in the ability to obtain drilling permits as it is likely that far fewer contracts will be awarded until the moratorium is lifted. Delays in start-up and ramp-up of many projects are also expected;
- uncertainty over the ability to cancel or reduce certain costly commitments; and
- significant CAPEX expenditure on hold.
To navigate through these challenges, companies experiencing difficulty will need to be prepared by having:
- clear visibility over short and medium term cash flows and working capital;
- good understanding of where cash is held;
- full understanding of the key cash drivers in the business;
- action points to help reverse some of the anticipated cash outflows; and
- tight controls in relation to the management of cash.
For more information, help or advice please contact Andrew Davison on 0191 211 7950.