Author: Mohamad Al-Kawafha, Audit Senior Manager
Energy companies are feeling the impact of the COVID-19 pandemic, due to decreased demand from consumers on one side and a price war between Saudi Arabia and Russia on the other. This reminds us of the pricing fallout in 2014, caused by lower demand in China and other large emerging growth economies.
Energy companies did not fully recover from the 2014 pricing fallout as most companies continue to maintain tight cash reserves complicated by large capital required with limited investors interested to invest in Energy.
How are energy CFO’s adapting
According to a recent survey, PWC noted that top CFO concerns about COVID-19 are Global recession (80%), decrease in consumer confidence (48%), negative financial impact (48%), effects on workforce/reduction in productivity (42%), and supply chain issues (34%).
Large energy companies began cutting their spending plans in 2020. They also made aggressive moves to suspend re-purchasing company stock and reduce workforce through layoffs or furloughs, in an effort to manage cash flows and long-term sustainability. In December 2019, Patrick Jankowski, Senior Vice President of research for the Greater Houston Partnership, predicted that Houston’s energy sector would see an overall decrease of approximately 4,000 energy jobs in 2020. Amid the oil price plunge and the current state of the energy market, Jankowski is now doubling that forecast, as suggested in an interview earlier this month with the Houston Business Journal.
According to an article published by the Wall Street Journal, oil executives requested the Texas Railroad Commission to limit production due to the fallout of oil prices. All the while, the White House approved a stimulus to boost the overall economy with the CARES Act.
Preparing for the future
Energy companies need to be prepared for recovery. Part of that preparation means looking at their financial and accounting environment to identify cost-saving opportunities and to determine how and where they can streamline operations for the near future. This is also a great time to review internal processes and determine where inefficiencies may exist within roles and responsibilities.
Briggs & Veselka is Houston’s largest independently owned CPA firm in Houston and we have seen these fluctuations before. Our Client Accounting Services team can help you move your accounting services to the cloud, or help with outsourced accounting staff to reduce overall costs. We can assist with audit readiness and fill the gaps where your remote employees are unable to complete all the necessary tasks. We also have one of the strongest technical accounting teams, who are able to provide assistance related to cost analysis, technical accounting guidance and IRS updates.
Please contact Kerry Kilgore, Audit Energy Lead Partner or Michelle Mullen, Tax Energy Lead Partner, for further discussion regarding ways Briggs & Veselka can help your Company navigate through these uncertain times.
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