According to the Central Bank's governor Stephen Poloz, decline in the Oil and Gas sector has had a measurable effect on Canada's macro-economic outlook. While volatility in the sector is certainly nothing new, the Alberta government's historic 350,000-barrel curtailment on crude extraction has presented a whole new set of challenges for the industry driven by overly inflated Western Canadian Select and a continued shipment backlog.
Initially, the big banks predicted that a higher heavy oil price relative to the West Texas Intermediate (WTI) benchmark would help allay the backlog of crude shipments, but oversupply continues to plague the province regardless of price recovery.
Government manipulation of markets is a risky endeavour, and rarely results in carefully predicted outcomes. Large players Imperial Oil, Husky, and Suncor all warned that government interference would have unanticipated impacts on the sector, and indeed they have proven to be correct. Among those unanticipated results: swollen balance sheets of major producers from strong 1st quarter price recovery. In Q4 of 2018 producers largely planned out cash flow neutral budgets, and investors are watching closely to see what companies will do with the incremental cash flow. The options: investing in further ground projects, focusing returns to shareholders via dividend or buyback, or leaving the cash on company balance sheets.
Regardless of how major producers allocate the gains, over $180 Billion in public and private capital projects above $5 million are either planned or currently under construction in Alberta, and businesses operating in the sector need to prepare themselves to capitalize on opportunities. Those set to action operationally will make initial gains vis-a-vis their competitors, but it's the businesses that marry their on-the-ground operational sophistication with a streamlined back office support process that will ultimately outlast and outperform their industry rivals.
Source: Statistics Canada and Alberta Economic Development and Trade
Alberta economic dashboard – alberta.ca
Are your operations streamlined?
Although each business within the industry has their own KPI's, many will face similar difficulties. Essential industry recommended best practices and regulations to ensure strict safety and environmental standards keep business owners on their toes. Adding on the oversight and administration layer of operating a successful oil and gas company can be time consuming and frustrating, especially when it comes to financial reporting, bookkeeping, and payroll. For many business owners, accounting for the day-to-day operations is not their area of expertise.
Oil and gas companies that can improve efficiencies will have a better chance of capitalizing on opportunities from planned investments in the sector.
Financial tips to operate more efficiently and help increase profits
The recent recession means that there is less work available leading to fewer profits. In order to stay ahead, oil and gas companies can innovate and streamline using technology to control excess costs, reduce administrative burden and shift priorities thus improve efficiencies.
Here are three financial tips to help: