By Michael McKerracher, Partner, National Industry Leader, Energy and Natural Resources
KPMG in Canada
These are unprecedented times! Our industry has some unparalleled obstacles to overcome. The COVID19 pandemic is creating remarkable demand destruction, which is something I have not seen in my 30 years in the industry. In addition, the breakdown of OPEC+ has created a supply driven war between Saudi Arabia and Russia and created such an oversupply of oil in the market, thereby driving oil prices down to historical lows.
Our industry is working to keep their workforce healthy, mitigate their downside risk, manage costs and preserve the almighty cash. Governments around the world are looking at stimulus packages for the energy industry as well as all other industries. In the meantime, what can companies do? I have a couple of thoughts:
- Build cash flow scenarios for different outcomes. Look hard at how your risks have changed and what the resilience of your company is in these fast changing times. I have spoken to a number of companies that are focused on conserving cash by reducing capital, reducing dividends, drawing their undrawn facilities, and redeploying staff.
- Talk to your lenders and key stakeholders early and often. Many within our industry did not go into this time with a strong balance sheet; talk to your bank early and work through different options with them and reach out to your key stakeholders to explain the various scenarios.
- Understand the government, tax, and legal considerations as well as subsidies available.This is changing fast, so please reach out to your professional network to get the latest information. KPMG has knowledgeable professionals that I can confidently recommend.
Yesterday there was a great discussion from Robert Johnston, Eurasia Group and Regina Mayor, KPMG’s Global Head of Energy and Natural Resources, outlining possible scenarios on the oil price war and COVID-19 demand shock. They summarized the impacts on the major oil producing regions of the World (Saudi, Russia, USA, and Canada) as well as impact on climate/ESG policy.
You can view the webcast replay here: bit.ly/KPMGwebcastresilienceinenergy
The environment in which everyone lives will be changed by events that are taking place today. The world still needs Canadian energy! There will still be significant demand for our oil and gas now and in the future. The Canadian energy industry can be optimistic that demand will recover as the crisis stabilizes and time progresses.
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