How new accounting technologies could cut costs for extractive industries
Following the fall in the price of Brent crude from its highs in 2014 to its lows in 2015, the price has continued to fluctuate over the last few months, culminating in a significant increase in the number of UK independent oil and gas companies becoming insolvent in 2016, when compared with last year.
This is particularly alarming for the UK’s oil and gas independents, who are exploring all over the world. While hedging strategies had delayed the impact of falling prices for some producers over the last few years, many of these contracts have now expired. Independents also tend to operate in jurisdictions that suffer higher operating costs per barrel than in major oil producing regions such as the Middle East or the Gulf of Mexico.
Although prices are expected to partially recover in 2018, with some commentators predicting the average price of Brent Crude to reach $70 per barrel in 2020, this may come too late for some UK independents.
There has never been a better time for CEOs and CFOs of UK independents to explore ways to improve back office efficiency and reduce costs. Without a consistent upward trend in the oil price, conditions are likely to remain tough for many of these companies for a number of years and, in order to continue to negotiate this difficult period, there is no better time to explore alternative business models and technologies, including the potential for financial outsourcing.
Financial outsourcing has moved on from the well-known ‘off-shoring’ models of the past that were adopted by many of the major oil and gas companies. Outsourcing providers are using advanced ERP and accounting systems that utilise cloud-based technologies and enhanced process automation. These systems allow senior finance officers to maintain close visual control of their company’s finances wherever they might be in the world, reduce head office costs and achieve follow on savings in a wide range of administrative cost areas.
It is not just the independent oil and gas companies that are struggling at the moment; many smaller companies in other extractive industries, such as mining and minerals, are also suffering from lethargic commodity prices.
The price pressure that these mining and minerals companies are currently experiencing is down to very different economic and geo-political drivers than those which have led to the current slump in oil prices, but the challenges that these businesses face are no less serious.
Business leaders can now reduce their administrative cost while maintaining control of their financial information by embracing new technologies that offer enhanced automation on recurring processing tasks, while concurrently enhancing their own internal systems and controls.
For more information on how a combination of financial outsourcing and new accounting system technologies can benefit your business, please contact us.