Low oil prices will hit oil service companies hard, says KPMG

Low oil prices will hit oil service companies hard

Fergus Woodward, Energy Partner at KPMG, comments on the impact of the low oil price on the wider Oil & Gas industry

Also on KPMG.com

Commenting on the impact of the low oil price on the wider Oil & Gas industry, Fergus Woodward, Energy Partner at KPMG said:

“A low oil price not only has serious implications for oil companies, but creates a ripple effect right through the supply chain and beyond.  The initial response we have seen from oil executives has been to take a hatchet to their forecasts, particularly for 2015, by stopping and deferring non-essential spend. If this action alone wasn’t enough of a warning signal for the companies who provide services to the oil sector, we are likely to see an even greater focus on reducing the supply chain costs over the coming months."

“We are likely to see a wave of procurement led activity, to review historic contracts for compliance and claw back overpayments, attempts to consolidate suppliers, rate renegotiations and more robust approaches to contract lifecycle management."

“This activity may result in adversarial positions between oil companies and service suppliers as contracts get renegotiated. However as with any market disruption, necessity is the mother of invention and so for the more mature and nimble companies, there will be the opportunity to collaborate with each other. This will drive alternative commercial arrangements in which both oil company and supplier can gain the benefits from reducing the cost base.”

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About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff.  The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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