COVID-19 has brought about a wide range of issues that companies are dealing with, but combined with the oil price collapse, there are some specific issues critical to companies in the energy sector. In these challenging times, energy company board members should be proactive and agile, and they should respond with strong leadership.
Energy companies are faced with many operational and strategic challenges, not the least of which is surviving the current downturn in oil and gas prices. No one can predict the duration or severity of this downturn. Nevertheless, it is the right time for companies to position themselves for success when prices recover.
Directors should understand what management is doing to protect cash flows and lower costs. Directors should probe whether any actions taken are sufficient and at the same time sensible. There should be no sacred cows. Companies should consider options, including:
The extreme volatility we have experienced in the energy markets over the last few months has created a need for greater transparency and oversight of corporate risk management programs. Large-scale moves in market prices can rapidly generate significant gains and losses. Historically, times like these have exposed weaknesses in governance and oversight in risk management programs. Furthermore, there is the potential for cascading failures if key players in the value chain are exposed to counterparties that cannot fulfill their contractual obligations.
To avoid failures of otherwise stable risk management programs, directors should understand how current operations have changed, have good transparency into risk exposure, programs and contingencies and have a strong governance structure to stay informed as the situation changes. To prevent failures in risk programs, directors should probe the details by asking the right questions to understand nuances in assumptions, contracts and markets.
US Assurance Partner, Energy, PwC US