Commodity prices remain the top factor impacting energy companies
TORONTO, Jan. 28 /CNW/ - A survey of energy companies-both public and private-indicate they want to strengthen their ability to survive the next downturn. When asked to select the top areas of strategic focus over the next three years, the top choices were asset management and optimization (20%), followed by operational performance (13%) and financial performance (12%). This according to The Perfect Storm: Catalyst for Performance Optimization, a 2009 Canadian Energy Survey Q3 Update by PricewaterhouseCoopers (PwC) LLP and JuneWarren-Nickle's Energy Group.
"Similar to how Hurricane Katrina was a catalyst for long-term business continuity planning, the economic downturn in 2009 forced energy companies to examine and make changes to their operational models," says Scott Bolton, PwC's Canadian Energy Practice Leader. "With credit tight and cash flow constrained, many organizations have had to take a close look at ways to reduce their costs and improve operating performance. They are realizing that improving underlying processes in areas such as IT and procurement is essential to staying competitive in the current environment."
The top five factors cited by respondents as impacting business over the next three years were oil price (61%), natural gas price (60%), a downturn in the global economy (60%), a disruption in capital markets (51%) and energy input costs (39%).
Indeed, companies have been challenged by lower commodity prices (particularly for natural gas), higher input costs (affecting operational costs) and ongoing supply-chain concerns. Half of the survey respondents said that they expect the impact of energy input costs will steadily increase over the next three years and 39% indicated that these costs will have a significant impact on their business over the same timeframe.
The results of the disruption to capital markets and limited free cash have meant that energy companies have been spending very little money to enhance their assets or even maintain them at an optimal level. The lack of investment in the short term results in significantly higher investment later to achieve a level of reliability.
"Energy companies should be focused on adopting a holistic enterprise asset management (EAM) program that will help them reduce their long-term spend on assets and increase production without a lot of capital investment," says Mr. Bolton. "We see opportunities for operators to significantly reduce their spend with third-party suppliers by developing a deeper in-house knowledge of assets and supply chain complexity and capabilities. An integrated approach which ties together assets, operations and people will drive long-term results, and better position companies to handle the economic waves of the future."
This report contains results from an online survey, conducted by PwC during the 22-day period from May 25 to June 15, 2009, to better understand issues currently impacting industry.
Close to 85% of the 140 respondents fill senior roles within the energy sector (49% in a leadership role; 35% in a managerial role), with the majority of respondents (61%) working for exploration and production (E&P) companies. About 12% of respondents work in the service industry and six per cent are employed by a drilling company.
Close to a quarter of respondents have operations in Western Canada, while 27% have operations in North America and 28% work internationally (multiple answers were allowed).
For more information, please visit www.pwc.com/ca/doingbusinessinalberta or www.pwc.com/ca/energyvisions.
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