Cash in the barrel 2012
Working capital performance improved in 2011
A review of global oil and gas companies’ WC performance for 2011 reveals a further improvement compared with 2010. Their cash-to-cash (C2C) was down 3%, bringing the total reduction to 8% in the last two years.
The industry’s stronger overall C2C performance in 2011 was entirely due to lower DIO (down 6%), partly offset by reduced DPO (down 3%).
These results were achieved in the context of higher oil prices (with WTI rising by 10%) but amid deteriorating refining market conditions in the final quarter of 2011 compared with the same period of 2010.
Each segment of the industry and half of the companies analyzed in the study reported improved results for the year. However, WC trends and the degree of change achieved by different participants varied widely. The top-performing companies posted a reduction of 11% in C2C, while the worst showed an increase of 13%.
The industry’s stronger overall C2C performance in 2011 was entirely due to lower DIO (down 6%), partly offset by reduced DPO (down 3%). DSO remained unchanged.
However, the recent improvement has not been big enough to reverse the deterioration in WC performance seen in previous years. As a result, the industry’s C2C is still showing an increase of 16% between 2003 and 2011, primarily due to much higher DIO (up 43%). The deterioration in inventory performance partly reflects the impact of much stronger oil prices.
By contrast, the differential between the receivables and payables cycles has been reduced since 2003, with the level of DSO exceeding that of DPO by only one day at the end of 2011. During the period under review, DSO and DPO were up 16% and 35%, respectively.
Across the industry as a whole, oil price volatility has led to large swings in C2C, particularly in recent years. Another significant factor that has influenced C2C has been the evolution of the industry’s capital expenditure strategies, with companies reacting quickly to changing oil market conditions by accelerating, slowing or deferring various projects and programs.