Change in the industry’s C2C, oil and natural gas prices, Q403–Q410
Source: Ernst & Young analysis, based on publicly available fi nancial statements
Three-quarters of the segments and two-thirds of the companies analyzed reported better results, but trends and degree of change showed large differences.
Summary: A review of the working capital performance of global oil and gas companies for 2010 reveals a year-on-year improvement compared with 2009, with C2C dropping by 4%.
Last year’s better working capital performance was due to a combination of higher payables and lower inventories. These results occurred in the context of stronger oil prices and recovery in capital spending. Gas prices were volatile, higher on average, but lower at year-end.
There is a relationship between changes in oil price and changes in the industry’s C2C performance, the degree of which varies across its core segments. In Q4 2010 oil prices were 12% higher, while gas prices were 18% lower. Variations in oil price also drive capital spending.
Change in the industry’s C2C, oil and
natural gas prices, Q403–Q410
The level of working capital improvement, however, did little to reverse the deterioration in performance in prior years. The industry’s C2C was still up 21% between 2003 and 2010.
This is largely attributable to deterioration in levels of inventories (DIO), reflecting the impact of much stronger oil prices, but also higher levels of physical stocks.
By contrast, the differential between receivables and payables cycles has been reduced since 2003, with the level of DPO exceeding that of DSO at the end of 2010 (up 17% and 38%, respectively, over the period under review).
Volatility in oil price and cash-to-cash variation
Volatility in the oil price has led to large swings in C2C. At the end of 2008 when oil price reached its lowest level for five years, C2C returned to within 8% of the level recorded at the end of 2003.
Another significant factor was the evolution of capital expenditure, with companies reacting quickly to changing oil market conditions by accelerating or slowing projects.
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