Cash in the barrel 2012

Wide variations in WC performance

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WC performance varies widely between the different segments of the oil and gas industry. This divergence reflects the specific characteristics of each segment, including the relevant industry dynamics, cost and investment profile, and regulatory environment, with each type of business operating at varying points in the oil and gas value chain.

Our analysis reveals wide variations in performance on C2C and other WC metrics between different companies in each segment.

Of the different oil and gas segments, independent E&P exhibits by far the lowest level of C2C (close to nil). This reflects strong results for DIO and DPO, with high levels of capital expenditure supporting the latter.

Integrated companies and independent R&M carry similar levels of C2C (27 days) but have diverging results as measured by WC metrics. Independent R&M boasts a superior performance in DSO, helped by their marketing operations’ inherently low level of receivables. In contrast, DIO is kept high, as make-to-stock is commonly used for refining products. DPO is also lower due to reduced capital expenditure requirements.

Oilfield services providers carry much higher C2C (96 days) than the other segments. This reflects the complex, long-cycle nature of these companies’ operating model, with some long-term contracts carrying significant down payment and progress billing terms.

Our analysis also reveals wide variations in performance on C2C and other WC metrics between different companies in each segment.

These performance gaps are partly due to differences in sales mix (with each segment carrying varying levels of WC); levels of vertical integration; nature of production and distribution arrangements and supply contracts; and production, logistics and distribution infrastructure. They also point to fundamental differences in the degree of management focus on cash and in the effectiveness of WC management processes.

 

WC performance by segment, Q411WC performance by segment Q411

 


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