Cash in the barrel 2013

Working capital results by segment

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A closer analysis also reveals major variations between the different segments of the oil and gas industry in the degree and direction of change in C2C over time.

Integrated

For integrated companies, the WC results for 2012 showed a strong improvement over 2011, with C2C down 9%. This enhanced performance came from a reduction in days sales outstanding (DSO) (down 8%) and, to a lesser extent, in days inventory outstanding (DIO) (down 1%). In contrast, days payable outstanding (DPO) declined by 2%.

Eight integrated companies out of 11 reported lower C2C, but with wide variations in the degree of change. This was partly due to differences in the levels of exposure to independent Exploration & Production and Refining & Marketing.

Since 2007, integrated companies’ C2C has fallen by 16%, owing to much lower DSO (down 8%) and higher DPO (up 6%). For DPO, the increase reflects the impact of growing E&P spend, partly due to continuing increases in the complexity and intensity of new oil and gas developments.

Table 3. Change in WC metrics for integrated, Q407–Q412

Integrated Change Q412 vs. Q411  Change Q412 vs. Q407
DSO -8% -8%
DIO -1% -1%
DPO -2% 6%
C2C -9% -16%

Source: EY analysis, based on Q4 publicly available financial statements

Independent exploration and production (E&P)

Independent E&P companies’ WC results worsened in 2012, with C2C rising by 2.5 days to return to a level close to that seen in 2010. This deterioration in performance was driven by both payables and inventory (with DPO down 8% and DIO up 19%), partly offset by a better showing in receivables (DSO down 8%). Half of the independent E&P companies analyzed reported higher C2C.

Since 2007, independent E&P companies’ C2C has decreased from 8.6 days to 2.7 days, driven by higher DPO (up 10 days, or 15%) on the back of increased capital expenditure, combined with cost inflation. This has been partly offset by higher DSO (up 4 days, or 6%). DIO is also up 5% since 2007, but the size of this change (a rise of less than one day) is less meaningful given the relatively low level of inventory inherent to this industry.

Table 4. Change in WC metrics for independent E&P, Q407–Q41

Independent E&P  Change Q412 vs. Q411 Change Q412 vs. Q407
DSO -8% 6%
DIO 19% 5%
DPO -8% 15%
C2C up 2.5 days down 5.9 days

Source: EY analysis, based on Q4 publicly available financial statements

Independent refining and marketing (R&M)

Compared to 2011, independent R&M companies reported slightly higher C2C (+1%), with two companies out of four posting improved results. The degree of change for each WC metric was minimal, with both DSO and DIO falling by 1% and DPO dropping by 3%.

These latest results mean that independent R&M companies saw a significant deterioration in WC performance since 2007. C2C increased by close to 8%, with DPO and DSO down 18% and 16%, respectively. While higher in 2012 than in 2007, DIO remained well off its peak of 2010. The oil market showed a strong “backwardation” in the last two years, a pattern in which spot prices sell at a premium to futures for future delivery, resulting in refiners holding less physical inventory.

Table 5. Change in WC metrics for independent R&M, Q407–Q412

Independent R&M Change Q412 vs. Q411 Change Q412 vs. Q407
DSO -1% -16%
DIO -1% 2%
DPO -3% -18%
C2C 1% 8%

Source: EY analysis, based on Q4 publicly available financial statements

Oilfield services

The WC performance of oilfield services companies deteriorated significantly in 2012 compared with 2011, with C2C rising by 11%. Five companies out of eight in this segment reported weaker results.

Measuring oilfield services providers’ receivables and inventory performance (using DSO plus DIO as a measure) shows a significant deterioration, with an increase of 9%. This outcome was affected by increased payment delays from a number of national E&P companies and the impact of higher activity in the final months of the year on receivables balances. In contrast, DPO improved by 4%, boosted by higher production levels at year-end.

Since 2007, C2C for oilfield services companies has increased by as much as 22%, impacted by the gradual change in their business models toward the provision of more integrated and long-term contracts. DSO and DIO gained 21%, while DPO rose by 14%.

Table 6. Change in WC metrics for oilfield services, Q407–Q412

Oilfield services Change Q412 vs. Q411 Change Q412 vs. Q407
DSO 8% 19%
DIO 11% 21%
DPO 4% 14%
C2C 11% 22%

Source: EY analysis, based on Q4 publicly available financial statements