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Foreword Executive Exploration & Oil field services How we can Appendices Contacts
summary production support you
3 4 7 15 19 24 28
Foreword
summary
Executive
Welcome to PwCs Working Capital Survey of the Oil
& Gas sector. Working capital is the lifeblood of every
company and a barometer of free cash flows. Investors
and production
Exploration
value efficiently run businesses, where free cash flow
is maximised; however, we see that significant cash
is tied up in working capital, restricting the ability to
grow and impacting value.
Oil field
services
Ross Hunter
In this survey, of over 900 oil & gas All of these pressures lead to one conclusion,
PwC Global Oil & Gas Leader companies, we look at the key working the industry needs cash to support itself and
capital trends across the globe in various invest for the future. Working capital can
sub-sectors of Oil & Gas. assist in tapping into this valuable resource.
support you?
How can we
The Oil & Gas industry is currently facing Globally, PwC is working with many
tough challenges following the fall in oil companies to help optimise working capital
prices which commenced in the second and achieve sustainable performance
half of 2014. With no expectations of a improvement. What would you do if you
price rebound, exploration and production could realise the equivalent of 5% of
Appendices
(E&P) companies in the sector are being revenue from working capital.
forced to re-evaluate major capex projects
and implement long term cost reduction
strategies as they get use to a life of lower
for longer. Meanwhile oil field services
Alison Baker (OFS) companies are beginning to feel
Contacts
PwC UK Oil & Gas Leader margin pressure passed down from E&P
companies implementing cost reductions.
summary
Executive
entities sampled
countries in terms
are down 20% the balance sheet of Oil & Gas
20%
of working capital
on the same companies. This represents
performance but
period last year USD 284bn for E&P
and production
Exploration
is improving
and USD 54bn
quickly
for OFS
Oil field
services
Oil eld service companies hold In 2014 the
ve times more Americas
support you?
How can we
working capital outpaced
Q1 2015 on average other E&P regions
results also show cash than the rest of by reducing net
Appendices
position deteriorating the industry working capital
from a worsening cash (NWC) by 4%
conversion efciency
(CCE)
Contacts
2015 Working Capital Survey in the Oil & Gas sector 5
6 PwC Bridging the gap
Exploration & production
USD 284bn
Foreword
of cash could be unlocked
by E&P companies
summary
Executive
and production
Exploration
on
Upstream companies
cti
are outpacing others
Oil
tion & produ
as they currently
fi eld
have NWC as a % of
servic
Oil field
services
sales at
ora
3% (the lowest
es
pl
of the group)
Ex
support you?
How can we
In 2014 the
Americas outpaced
Appendices
other E&P regions
by reducing NWC
by 4%
Contacts
2015 Working Capital Survey in the Oil & Gas sector 7
Our study looks at 806 companies in the E&P sector (both listed and unlisted) with revenues above USD 100m
232 Europe
37 Africa
103 Middle East 76 Australasia
545 Americas
2,255 Asia
2,409 Europe
Foreword
to a lower and more uncertain oil price environment
summary
Executive
The price outlook remains highly uncertain
and production
Exploration
160
Historical Evolution Long-Term Outlook
140
120
Brent $/bbl
Oil field
services
100
80
support you?
60
How can we
40
20
Appendices
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Contacts
EIA High Oil Price EIA Low Oil Price EIA Low Oil Price EIA Reference
Source: EIA-AEO-Early 2015, IEA World Energy Outlook 2014; EIU; PwC research
2015 Working Capital Survey in the Oil & Gas sector 9
7% 7% 7%
6%
5%
7% 7% 7%
2010 2011 2012 2013 2014
The focus on working capital improvement in the E&P sector initiated
6% in 2013 had a strong impact in 2014
5%
5% Midstream
2010 2011 2012 2013 5%
2014 Upstream
7% 2010 2011 2012 2013 2014
Downstream
6% 6% 6%
Integrated
7% 5% 5%
7%
2010 2011 2012 2013 2014
6% 6% 6% 6%
5% 5% 5%
7% 7% 7%
2010
7% 2011
6% 2012
7% 2013
7% 2014
Working capital performance has improved over the five year period with a 6% 5%
2% decline in cash tied up in NWC since 2010. Performance has improved
with an additional USD 156bn of cash released in the current financial year. 2010 2011 2012 2013 5%
2014
2010 2011 2012 2013 2014
8% 8%
13%
11% 5%11% 11% 11% 11%
11% 11% 11%
2010 2011 2012 2013 2014 9% 9% 9%
9%
2010 2011 2012 2013 2014
9% 2010 2011 2012 2013 2014
8% 8% 8% 5%
11% 11% 13%
6% 2010 2011 2012 2013 2014
11% 11%
2010 2011 20129% 2013 2014 9% 11% 11% 11%
E&P companies in the Americas have improved by 4%, the
8% greatest
9%
improvement in the
9% regions
9%
Foreword
8% 8%
9%
8% 8%
5% 6%
7% 2010 2011 2012 2013 2014
6% 6% 2010 2011 2012 2013 2014 2010 5%
Europe Middle East2011 2012 2013 2014
2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
9% 11% 11%
8% 8% 8% 8% 8%
summary
Executive
9%9% 7% 9%
7% 6% 6% 6% 8% 8% 8%
6% 6% 6% 2010 2011 2012 2013 2014
2010 2011 5%2012 2013 2014 6%
2010 2011 2012 2013 2014 2010 2011 2012 2013 5%
2014
8% 8% 2010 2011 2012 2013 2014
and production
7%
7%
Exploration
6% 6% 6% 6% 6%
6% 6% 6% 8% 5% 8%
2010 2011 5%2012 2013 2014 9% 7%
4% 2010 2011 6%
2012 2013 6%
2014
8% 8% 8%
USA/Canada
2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
Asia 6%
7% 6% 6% 6%
6% 6% 6% 2010 2011 2012
5% 2013 2014
5% 4%
7%
4% 4%
Oil field
services
2010 2011 2012 2013 2014 2010 2011 6%
2012 2013 6%
2014 6%
3% 3% 3% 5%
8% 8%
2010 2011 2012 2013 2014 2010 2011 2012 7%
2013 2014
6% 6%
6% 6% 6%
5% 4% 2010 4%
2011 2012 2013 2014
4%
13% 3% 3% 3%
6% 6% 6%
support you?
2010 2011 2012 2013 2014
How can we
2010 2011 2012 2013 2014 5%
4%
11% 11% 11%
2010 7%2011 2012 2013 2014
9% 6% 6% 6%
4% 5%
E&P NWC %
4%
2010
Americas2011 2012 20133% 20143% 3%
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014 Australasia
4% 4%
3% 3% 3%
Appendices
11% 11%
2010 6%2011 6%
2012 6%
2013 2014
9% 9% 5%
Africa 4%
2010 2011 2012 2013 2014
5%
2010 2011 2012 2013 2014 13%
Contacts
11% 11% 11% 4% 4%
9%
3% 3% 3%
8% 8% 8%
9%
2010 2011 2012 2013 2014
6% 2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
20 18
20 18
18 18
20 20
19 19 16 16 15 15
12 12
12 12 10 10 Overall, performance has
58 60
58 60
58 58
55 55
45 45 35 35 37 37
35 35
improved across all streams from
32 32 30 30
2013 to 2014.
20 2018 1818 1820 20 -20 -20 -20 -20
-23 -23 -24
15 -23
-24 -23
-51 -48
-51 -44
-48 -44
-47 19
-47
-48 19
-48 16 16 15
12 12 This improvement has primarily
12 12 10 10
58 60
58 60
58 58
55 55 37
been driven by a decrease in DSO.
45 45 35 35
32 32 37
35 35
30 30
2010 2010
2011 2011
2012 2012
2013 2013
2014 2014 2010 2010
2011 2011
2012 2012
2013 2013
2014 2014
However the DPO of all
-23 -20
-23 -20
-24 -23
-24 -20
-23 -20
-51 -48
-51 -44
-48 -44
-47 -48
-47 -48 sectors, except Upstream, has
deteriorated over the past year by
2010 2011 2012 2013 2014 2010 2011
2010 2012
2011 2013
2012 2014
2013 2014
10 days overall.
2010 2011 2012 2013 2014
28 28
27 27 28 28
27 27 25 25
25 25
25 25 25 25
20 20 20 20
Days Sales Outstanding (DSO)
28 28
26 26
24 24
24 24 28 28
26 26
24 24
24 24
21 21
21 21
Days Inventories Onhand (DIO)
-30 -30
-29 -29
-29 -25
-29 -25 -33 -30
-33 -30
-29 -29
-29 -25
-29 -25
-33
28 -33
28 28 2827 27 Days Payables Outstanding (DPO)
27 27
25 2525 25 25 25
25 25
20 20 20 20
28
2010 2010
2011
28
26 2011
2012
26
24 2012
2013
24 2013
2014 2014 28
2010 28
26
2010
2011 24
26
2011
2012 24
2012
2013
24 24
2013
2014
21 2014
21
24 24
21 21
USD 54bn
Foreword
could be unlocked by
OFScompanies
summary
Executive
and production
Exploration
Ex
OFS companies
pl
ora
fi eld services
carry five
Oil field
services
working
Oil
X5
c
capital than
tio
n
E&Pcompanies
support you?
How can we
Australasia
outpaced
Appendices
other OFS
companies
with the lowest NWC% of
Contacts
the sub-sector
2014: 320,108
2013: 266,251
2012: 270,713
2011: 238,166 Oil field services companies
have higher working capital
2010: 179,523
26%
balances than E&P companies.
Thisis largely due to the
purchasing power of the oil
majors allowing for easier
stretching of payment terms as
seen by the high DSO and DIO
ofOFS companies.
26%
26%
24% 26% OFS companies face a different
struggle in an environment
of low prices. Contracts
with E&P companies may be
renegotiated to reduce supply
chain costs. With reduced
profit margins, cash will be
critical to maintaining liquidity
until prices rise and improved
Revenue NWC %
contract rates return, including
working capital terms in
contract renegotiations which
will be essential.
summary
Executive
improvement
93 86 87 92 89
93 86 87 92 89
2010 2011 2012 2013 2014
and production
93 86 87 92 89
Exploration
2010 2011 2012 2013 2014
DPO 2 days
deterioration
Oil field
services
45 43 40 42 40
45 43 40 42 40
support you?
How can we
2010 2011 2012 2013 2014
45
2010
43
2011
40
2012
42
2013
40
2014
DIO 2 days
Appendices
2010 2011 2012 2013 2014 improvement
48 46 48 47 45
Contacts
48 46 48 47 45
2010 2011 2012 2013 2014
48
2010 46
2011 48
2012 47
2013 45
2014
2015 Working Capital Survey in the Oil & Gas sector 17
Foreword
Examples of areas where PwC could help you to
release cash from working capital:
summary
Executive
Accounts receivable
and production
customer terms Systemsbased
Exploration
Billing timeliness dispute resolution
and quality Dispute root
Contract and cause elimination
Complete a Perform a Develop Assist the milestone management Asset based lending /
working capital diagnostic detailed action realisation of securitisation
benchmarking review to plans for sustainable
exercise to identify quick implementation working capital
Oil field
services
compare wins and to generate reduction by
performance longerterm cash and make implementing Accounts payable
against peers working capital sustainable robust,
Consolidated spending Supply chain finance
and identify improvement improvements. efficient and
Increased control with Payment methods
potential opportunities. collaborative
support you?
centre-led procurement and frequency
How can we
improvement processes.
opportunities. Purchasing channels to Eradicated early
avoid leakage payments
Aligned and optimised
payment terms
Appendices
Inventory
Lean and agile supply Differentiated inventory
Addressing the key levers:
chain strategies levels for different goods
Identification, harmonisation and Process compliance and monitoring.
Global coordination Balanced cash, cost
improvement of commercial terms. Creating and embedding a cash Forecasting techniques and service
Contacts
Process optimisation throughout the culture within the organisation, Production planning Asset based lending
endtoend working capital cycles. optimising the tradeoffs between Accurate tracking of
cash, cost and service. inventory quantities
Sub-contractor
Payables
Activity recording
Contract management, Potentially clearing
Back margin through Trading receivables and Franchise Customer Franchise Customer and WIP management
milestone payments of intercompany
logistics volumes netting Terms & Collections Terms & Collections Timely & accurate
andbillings receivables
billing
Inventory
Material requirements Maintenance & Replenishment cycles Target stock definition Network optimisation & Various demand Spare parts
for buildup continuous production for tankers with min. production replenishment cycles patterns per channel management
26bn
of Working Capital
Payables Improvements 20% 80%
5-10%
of revenue Perception: Cross functional:
1 2
Working Capital is an operational Sustainable improvements are
issue, but is often perceived to sit complex, requiring an operational
with finance and cross functional approach
Foreword
Basis of calculations
This study provides a view of global working capital performance in the global Oil and Gas sector
and is based on the research of 991 companies in the world. For consistency reasons and to be able
to add the individual ratios together we have calculated DSO, DPO and DIO based on sales.
summary
Executive
Metric Basis of calculation Limitations of this study
NWC % (Net working capital %) NWC % measures working capital (Accounts Receivable + Inventories Companies have been assigned to
and production
countries based on the location of their
Exploration
requirements relative to the size of Accounts Payable)/Sales
thecompany. headquarters. Although a significant
part of sales and purchases might be
DSO (Days Sales Outstanding) DSO is a measure of the average number of Accounts Receivable/Sales x 365 realised in that country, it does not
days that a company takes to collect cash necessarily reflect typical payment
after the sale of goods or services have terms or behaviour in that country.
beendelivered.
Oil field
services
As the research is based on publicly
available information, all figures
DIO (Days Inventories Onhand) DIO gives an idea of how long it takes for a Inventories/sales of revenue x365 are financial yearend figures. Due
company to convert its inventory into sales. to disproportionate management
Generally, the lower (shorter) the DIO, efforts to improve working capital
support you?
thebetter.
How can we
performance towards yearend (also
referred to as window dressing)
DPO (Days Payables Outstanding) DPO is an indicator of how long a company Inventories/sales of revenue x365 the real underlying working capital
takes to pay its tradecreditors. requirement within reporting periods
might be higher. Also offbalancesheet
CCE (Cash Conversion Efficiency) CCE is an indicator of how efficiently a Cash Flow from Operations/EBITDA financing or the effects of asset
Appendices
company is able to convert profits into cash. securitisation (e.g. receivables) have
not been taken into account.
Contacts
2015 Working Capital Survey in the Oil & Gas sector 25
Summary data
Subgroup Primary industry Africa Americas Asia Australasia Europe Middle East USA, Canada Total
Companies in the study Integrated Integrated Oil and Gas 3 8 13 1 26 NIL 9 60
by primary industry Upstream Oil and Gas Drilling Nil 9 5 3 12 2 18 49
group and Oil and Gas Exploration and Production 2 10 16 13 65 5 142 253
macro-region Midstream Oil and Gas Storage and Transportation 2 20 21 18 64 2 101 228
Downstream Oil and Gas Refining and Marketing 11 23 41 4 71 13 53 216
Services Oil and Gas Equipment and Services 2 18 37 4 56 3 65 185
Total 20 88 133 43 294 25 388 991
Subgroup Primary Industry Africa Americas Asia Australasia Europe Middle East USA, Canada Total
NWC as a % of sales Integrated Integrated Oil and Gas 17% 3% 4% 2% 6% N/A 3% 5%
by primary industry Upstream Oil and Gas Drilling N/A 16% 24% 21% 19% 28% 13% 18%
group and Oil and Gas Exploration and Production 6% 10% 4% 1% 8% 7% 1% 3%
macro-region Midstream Oil and Gas Storage and Transportation 34% 5% 4% 7% 7% 7% 4% 5%
Downstream Oil and Gas Refining and Marketing 1% 3% 7% 6% 3% 7% 3% 5%
Services Oil and Gas Equipment and Services 39% 24% 32% 14% 24% 32% 28% 26%
Total 9% 6% 5% 6% 7% 8% 5% 6%
Subgroup Primary Industry Africa Americas Asia Australasia Europe Middle East USA, Canada Total
DSO by primary Integrated Integrated Oil and Gas 46 21 18 57 30 N/A 25 25
industry group and Upstream Oil and Gas Drilling N/A 74 102 89 77 117 71 78
macro-region Oil and Gas Exploration and Production 36 68 32 21 36 51 45 42
Midstream Oil and Gas Storage and Transportation 32 23 28 28 26 37 29 28
Downstream Oil and Gas Refining and Marketing 32 22 22 12 27 34 16 21
Services Oil and Gas Equipment and Services 182 122 115 71 93 104 79 89
Total 42 35 22 33 35 36 30 30
Subgroup Primary Industry Africa Americas Asia Australasia Europe Middle East USA, Canada Total
DPO by primary Integrated Integrated Oil and Gas 30 32 32 55 29 N/A 31 31
industry group and Upstream Oil and Gas Drilling N/A 25 31 15 28 37 31 28
macro-region Oil and Gas Exploration and Production 44 69 45 34 21 27 55 49
Midstream Oil and Gas Storage and Transportation 173 15 23 8 18 32 22 20
Downstream Oil and Gas Refining and Marketing 58 35 24 11 33 25 19 24
Services Oil and Gas Equipment and Services 67 70 63 20 45 25 30 40
Total 46 39 32 23 29 25 28 31
summary
Executive
DIO by primary industry Integrated Integrated Oil and Gas 46 24 28 7 22 N/A 16 23
group and Upstream Oil and Gas Drilling N/A 10 18 5 21 21 9 14
macro-region Oil and Gas Exploration and Production 29 38 30 17 14 0 7 19
Midstream Oil and Gas Storage and Transportation 16 10 8 5 17 19 8 10
Downstream Oil and Gas Refining and Marketing 29 25 28 20 18 18 16 20
Services Oil and Gas Equipment and Services 27 36 64 1 39 36 52 45
and production
Exploration
Total 37 26 28 12 22 18 15 22
USA, Sector
Sub-group Primary industry Africa Americas Asia Ausralasia Europe Middle East
Canada total
Integrated Integrated Oil and Gas 634 10,033 36,665 218 72,391 N/A 14,422 134,362
Oil field
services
Upstream Oil and Gas Drilling N/A 1,675 870 249 1,859 210 1,615 6,478
Oil and Gas Exploration andProduction 129 2,284 5,590 1,273 22,030 190 22,544 54,039
support you?
How can we
Midstream Oil and Gas Storage andTransportation 149 10,811 11,780 416 4,719 96 7,517 35,488
Downstream Oil and Gas Refining andMarketing 313 3,175 25,993 1,207 9,474 5,923 17,426 88,297
Services Oil and Gas Equipment andServices N/A 1,635 840 840 20,157 1 20,661 44,135
Appendices
Country total 1,225 29,613 81,737 4,202 130,629 6,420 84,185 338,011
Total cash opportunity from working capital High opporunity Low opportunity
Contacts
2015 Working Capital Survey in the Oil & Gas sector 27
Contacts Oil & Gas Working
Dedicated Working Capital Partners Capital Specialists
For more information about this subject please contact:
Glen is a partner in our working capital practice, Rob is a partner in our European working capital Nick is a manager in our working capital practice and has
leading our work across the regions of the UK. practice. He has over seventeen years of extensive over eight years experience in delivering working capital
Hehas worked with companies across the UK, experience of delivering working capital management and cost reduction benefits to international businesses in
Europe and internationally about cash flow programmes to generate cash for large, corporate a wide range of industries (mining services, construction,
improvement and cost reduction. clients across Europe, Asia and the Americas. manufacturing and transportation). He has assisted
management and lenders to identify and implement cash
improvement and operational efficiency projects in Europe
and Australia.
28 PwC Bridging the gap
Working Capital Management Global Network
Foreword
Australia Austria CEE Denmark
David Pratt Christine Catasta Petr Smutny Bent Jorgensen
summary
Executive
T: +612 8266 2776 T: +43 1 501 88 1100 T: +42 25 115 1215 T: +45 3945 9259
E: david.pratt@au.pwc.com E: christine.catasta@at.pwc.com E: petr.smutny@cz.pwc.com E: bent.jorgensen@dk.pwc.com
and production
Michael Hardy Francois Guilbaud Rob Kortman Ted Osborn
Exploration
T: +358 50 346 8530 T: +33 156 578 537 T: +49 1709 879253 T: +852 2289 2299
E: michael.hardy@fi.pwc.com E: francois.guilbaud@fr.pwc.com E: rob.kortman@de.pwc.com E: t.osborn@hk.pwc.com
Oil field
services
T: +39 026 672 0536 T: +603 2173 0888 T: +971 4304 3641 T: +47 95 26 00 60
E: riccardo.bua.odetti@it.pwc.com E: ganesh.gunaratnam@my.pwc.com E: mihir.bhatt@ae.pwc.com E: jorn.juliussen@no.pwc.com
support you?
How can we
Peter Greaves Josu Echeverria Jesper Lindbom Reto Brunner
T: +65 6236 3388 T: +34 91 598 4866 T: +46 70 9291154 T: +41 58 792 1419
E: peter.greaves@sg.pwc.com E: josu.echeverria.larranga@es.pwc.com E: jesper.lindbom@se.pwc.com E: reto.brunner@ch.pwc.com
Appendices
Danny Siemes Gokdeniz Gur Paul Gaynor
T: +31 88 792 42 64 T: +90 212 376 5332 T: +1 925 699 5698
E: danny.siemes@nl.pwc.com E: gokdeniz.gur@tr.pwc.com E: paul.m.gaynor@us.pwc.com
Contacts
2015 Working Capital Survey in the Oil & Gas sector 29
Notes
www.pwc.com/workingcapitalsurvey
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are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon
the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as
to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any
liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this
publication or for any decision based on it.
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see www.pwc.com/structure for further details.