Cash in the barrel: working capital management in oil and gas industry 2011

Working capital results by segment

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There were vastly differing results in various oil and gas segments.

Summary: Analysis of last year’s working capital performance by segment shows significant improvement for integrated, independent exploration and production and, to a lesser extent, oilfield services, and deterioration for independent refining and marketing.

Integrated companies

For integrated companies, working capital results were strong in 2010, with C2C dropping by 8% compared with 2009. Each working capital component contributed to this improvement.

Seven companies out of nine reported lower C2C. Variations in performance, however, were partly due to differences of exposure to exploration and production, refining and marketing and oilfield services.

Since 2003, C2C increased by 18%, due to higher inventories (DIO up 52%) and, to a lesser extent, to receivables (DSO up 14%), partly offset by rising payables (DPO up 38%).

Independent exploration and production

Independent exploration and production companies posted better working capital results in 2010, with C2C falling by 3 days. The change (-55%) was exaggerated by the low level of working capital inherent in the nature of the business. Four in six companies reported lower C2C.

Progress came from payables, with rising capital expenditure and anticipation of near-term growth. Payment terms with suppliers also appear to be more favorable. By contrast, there was deterioration in receivables performance.

Since 2003, C2C decreased from 9 to 3 days on the back of higher payables, offset by increased receivables. Inventories (DIO) rose slightly.

Independent refining and marketing

This segment reported a year-on-year deterioration in working capital performance, with C2C rising by 11%. However, only half showed higher C2C. DIO rose by 10%, reflecting the impact on performance of stronger oil prices and the segment’s position in the industry value chain. The importance and composition of inventories compounded this.

Although up 6%, DSO was offset by an increase of 7% in DPO.

Since 2003, C2C increased by 37%. Inventories were much higher (DIO up 59%) and only offset by increased payables (DPO up 33%). Receivables (DSO) were slightly up.

Oilfield services

For oilfield services, working capital performance improved in 2010 compared with 2009, with C2C down 2% and five companies out of eight showing better results.

Progress came entirely from inventories (DIO down 9%). By contrast, receivables increased by 3%, suggesting that exploration and production companies may have chosen to stretch terms with their suppliers despite the better pricing conditions for oilfield services.

Measuring oilfield services providers’ receivables and inventory performance (using DSO plus DIO as a measure) still shows a year-on-year decline of 3%.

With regard to payables, last year’s results show a deterioration in performance (DPO down 6%). This indicates service providers may have failed to pass pressure from customers down to their suppliers.

Since 2003, C2C increased by just 3%. DSO plus DIO gained 5%, while DPO rose by 14%.



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