Globally, the oil and gas industry is experiencing continued price volatility, significant technology advancements, regulatory changes, and the opening of new exploration areas and new markets. Companies have expanded internationally via production sharing contracts, mergers, acquisitions, and strategic alliances. The industry faces higher spending requirements for compliance with environmental and safety standards
Crunch Time - Embedding International Financial Reporting Standards in the Oil & Gas and Utilities Industries
With little time left to go until the biggest shake-up in accounting standards in 25 years, Europe's oil and gas and utility companies need to start the implementation work now to achieve a smooth transition to International Financial Reporting Standards. Crunch Time - Embedding International Financial Reporting Standards in the Oil and Gas and Utilities Industries is a PricewaterhouseCoopers report which highlights the opportunities, tensions and challenges CFOs will face as they embrace the new standards and embed them into the organisation. European Union regulation requires all listed European companies to comply with International Financial Reporting Standards (IFRS) by 2005 for their group financial statements.
Countries outside the EU, including Australia, Russia and several Middle Eastern and African countries have also agreed on mandatory compliance to IFRS.
To manage stakeholder expectations, and those of market analysts and regulators, many companies are likely to produce IFRS financial information in advance of 2005.
Companies currently reporting under national generally accepted accounting principles (GAAP), face the greatest challenge, as the change from local GAAP to IFRS involves almost the whole company.
Embedding this new basis of financial reporting and performance measurement across the entire organisation is critical.
The new global standards carry profound implications for companies and pose specific challenges in different sectors.
Across the whole oil and gas and utilities sectors, a fundamental challenge for both regulatory standard-setters and company Chief Financial Officers will be to explore how the evolving standards can heighten transparency by ensuring that the bases of external financial reporting and internal management reporting are as seamless as possible.
Going global - Change and challenge in the gas market
Gas is poised to become the fuel of the future, yet companies and regulators alike face a growing reality within mature markets of the burgeoning gap that is forming between supply and demand. In a complex market, many companies are seeking to avoid risk by occupying a clear point on the value chain. Some are choosing to diversify through multi-product offerings, whilst others are re-focusing their attention towards horizontal product and service differentiation. For all, the challenge will be to deliver a market model that offers incentives for investment, customer demand, market development, reduced costs and competitive prices.
Certainly for all mature market players, gas is no longer the plentiful fuel source it once was and there is a price to be paid for ensuring the continuance of its supply. Policy makers and industry leaders alike must establish who will pick up the tab and how to create the right environment for its timely payment.
Drilling deeper: Managing value and reporting in the petroleum industry
More than ever, investors are on guard against corporate reports that may be technically correct, but fail to provide a true picture of a company's health and prospects. The need for reporting measures and techniques that fully communicate the potential of a company's strategy and operations and promote trust is possibly greater than ever before. Oil and gas companies have built solid relationships with investors but, as the comprehensive survey Drilling deeper: Managing value and reporting in the petroleum industry shows, there is potential for fine-tuning and deepening communication to deliver more value for investors and companies alike.
The potential benefits for companies are two-fold. By increasing disclosure, companies have the prospect of deepening relationships with long-term investors, reducing stock volatility and maximising share value. It also provides a clear platform for influencing and educating the regulatory climate.
To complete this survey PricewaterhouseCoopers commissioned an independent market research firm, Market & Opinion Research International (MORI) to survey three key groups:
- Petroleum companies: The respondents included 39 senior petroleum executives, either Chief Financial Officers or Heads of Investor Relations. They represented leading global petroleum companies headquartered in North America, South America, Europe and Russia. Companies from the integrated, exploration and production (E&P), downstream and service sectors were included. The collective market capitalisation of respondents' companies was in excess of US$800 billion
- Investors: The respondents included 50 institutional investors (or fund managers). In total, they manage more than US$2.6 trillion in funds, including more than US$31 billion in oil and gas funds
- Analysts: The respondents included 30 leading sell-side analysts from top investment banks in the U.S. and Europe.