Will Oil Exploration Companies Reduce Their Exploration Due to Climate Change?
Major Challenges of Oil and Gas Companies
Hindrance as it navigates the transition toward cleaner energy sources
In 2022, the oil and gas industry experienced a year of super profits, with many giant companies’ financials hitting more than $250 billion USD. However, this financial success has not come without its share of scrutiny. Stakeholders and investors of these companies are facing immense pressure from public and global communities to contribute towards global climate change mitigation efforts.
Statutory, Regulatory, and Global Challenges for Oil and Gas Companies
The oil and gas industry faces a myriad of statutory, regulatory, and global challenges. Here are some of the key issues:
1. Differential Reporting
Oil and Gas Companies do not have a dedicated, industry-specific accounting standard. This leads to differential reporting for each entity, based on specific regulations for different regulators and country-specific requirements. The lack of a unified standard can lead to inconsistencies and complexities in financial reporting, making it challenging for stakeholders to compare and analyze financial statements across different companies and jurisdictions.
2. OPEC Regulations
The price, production, and supply of oil are regulated by the Organization of Petroleum Exporting Countries (OPEC). Companies have to follow their guidelines, which can significantly impact their financial statements. Changes in OPEC’s policies can affect asset values and future cash flow projections, adding another layer of complexity to financial reporting and planning.
3. Energy Transition
Oil and gas companies have built up significant expertise in extracting and processing fossil fuels. However, redesigning their business for renewable sources like Lithium and Nickel extraction requires a completely different set of exploration and processing techniques. Despite these challenges, many giants like Exxon and Saudi Arabian Oil Co are creating partnerships for energy transitions. These partnerships represent a strategic shift towards sustainable energy sources and reflect the industry’s commitment to contributing to global climate change mitigation efforts.
What Steps Could Oil and Gas Companies could take?
Streamlining Financial Processes in Oil and Gas Extraction Companies
In the dynamic world of oil and gas extraction, companies can significantly enhance their financial operations by implementing the following steps:
- Upgrade Old Financial ERP Systems: By analyzing their financial data, companies can identify areas of inefficiency in their existing ERP systems. Upgrading to a modern, more robust system can streamline processes, improve data accuracy, and provide real-time financial insights.
- Update Financial and Accounting Processes: Reducing the dependence chain of approval from management can expedite decision-making and improve operational efficiency. By updating their financial and accounting processes, companies can ensure smoother and faster transactions.
- Revaluate Intangibles and Introduce Lease Accounting Management Process: It’s crucial for companies to periodically revaluate their intangible assets to reflect their true market value. Additionally, introducing a lease accounting management process for leasehold equipment can ensure careful evaluation of leases. This not only helps maintain accurate financial reporting standards but also aids in better asset management.
- Outsource Accounting Systems on Limited Projects: Outsourcing accounting systems, especially for complex processes like lease accounting, can be beneficial. It not only ensures better implementation due to the expertise of the service provider but can also reduce the operational cost of lease management.
By adopting these measures, oil and gas extraction companies can enhance their financial operations, leading to improved profitability and business growth. Remember,
a well-managed financial system is the backbone of a successful business.
How ADRIFINTECH can solve some issues of OIL & GAS companies
At Adrfintech, we understand the intricacies of the financial system processes of oil and gas producing companies. Our expertise allows us to take strategic steps to streamline both financial and operational processes, enhancing efficiency and effectiveness across the board.
Monthly Closures
We assist in streamlining the monthly closures for all subsidiary books by Workday -3. This approach helps in reducing the accruals for Goods Received Not Invoiced (GRNI), making the month-end processes more effective and less time-consuming.
Operational Templates
Understanding the need for a smooth operational flow, we design templates for each department of operations in a linear manner. This reduces the dependencies of approvals, ensuring a faster and more efficient workflow.
Customizing Chart of Accounts
We understand that every company is unique and so are their financial processes. We delve into the Chart of Accounts and customize the company’s operating model design based on the company’s specific approval process. This tailored approach ensures that the financial system aligns perfectly with the company’s unique needs and requirements.
At ADRIFINTECH, we are committed to providing solutions that not only meet but exceed our clients’ expectations. Our goal is to help oil and gas companies navigate their financial challenges and achieve their business objectives with ease and efficiency.