The Association of Chartered Certified Accountants (ACCA) has said that if the oil and gas companies are to survive the ongoing global price volatility in the sector, they must perfect their acts in the management of growth, costs, funding and externalities.

Besides, the global accounting body said they must appreciate the fact that the risk of going under is a very real, especially with lower cash-flows due to depressed oil prices, existing debt overhang and looming mass retirement of expert in the sector.

The Head of ACCA Nigeria, Toyin Ademola, who made the observations, however said that the sector’s chiefs who emerge successfully in steering their organisations out of the challenging period will be set to prosper.

According to Ademola, beside other challenges besetting the sector, the “so-called ‘great crew change’ that would usher in the retirement of senior expert professionals over the next five years will leave a talent vacuum in its wake.”

She noted that after analysing market conditions and taking the views of a range of key strategic players in the sector, it emerged that putting four factors under control- growth, costs, funding and externalities, would facilitates chances of success.
“Identify and postpone projects with a high degree of uncertainty. Be especially ruthless with any at the early stages of development, which can be killed without much fuss.

Seek partners to share in the risk – and of course, reward, of projects. For example, through part-sale of operating interest in new discoveries.
“If possible, explore opportunistic growth through acquisition in areas with room for consolidation, for example oilfield services. There could be valuable growth opportunities right now, for example in mergers and acquisition or by continuing investment in nationally important, high-profile projects with longer-term value,” she said.

There could be valuable growth opportunities right now, for example in mergers and acquisition or by continuing investment in nationally important, high-profile projects with longer-term value

Ademola also advised companies to concentrate their asset sales on those that are not central to long-term strategy, noting that organizations with a strong focus are always better prepared in times of extreme stress or volatility.
“Where redundancies are inevitable, manage them carefully to account for skills-gap impact, and ensure readiness for future growth when the oil price rebounds.
“Re-negotiate discounts with contractors to manage service costs and on-going expenditure. There could be room here, as many suppliers may prefer lower margins to idle machinery in the challenging times we are currently experiencing,” she said.

While pointing out that in the near term it is usually about survival, she warned that there the tendency to lose sight of a credible growth story for the longer-term may be there.
“To give your organization the best chance of attracting funding, ensure the security of your current income stream, even if it is reduced. That stability is key to ensuring there is a consistent stream if income.

It is important to model the impact of rising interest rates on sourcing bank and debt funding. Seek a realistic picture as oil prices cannot be modelled on a safe, upward trajectory to pay for higher rates with future income as they have been in the past.
“As minimizing risk and exposure becomes critical, explore non-debt options for funding. For example, with specialist equity investors who play exclusively in the oil and gas sector. In short, private equity funds are going to be your friends,” she added.