Grant Thornton survey: Energy CFOs are confident, yet operations and funding challenges persist

— 56% of energy CFOs said global and economic conditions will have a positive effect on the industry

— 40% cited operational efficiency as a top business challenge

— 51% noted a moderate probability that their company will participate in at least one deal in the coming 12 months

— 42% are looking to implement core enterprise resource planning financial systems

A new survey from Grant Thornton, one of America’s largest brands of professionals providing end-to-end audit, assurance, tax, and advisory services, revealed that chief financial officers (CFOs) in the energy industry have a positive outlook on the state of the sector.

More than half (56%) of the 161 energy finance leaders surveyed across various sectors, including power and utilities, renewable and alternative, services, natural resources, midstream transportation and storage, refining, and retail and marketing, said global and domestic economic conditions will have a positive or very positive effect on the energy industry over the next six months.

“The outlook for the energy industry in the near- and mid-term is very positive,” said Bryan Benoit, principal and global head of Energy and Natural Resources at Grant Thornton Advisors LLC. “One reason for optimism is the fact that oil and gas prices remain above historical levels, while hydrocarbon demand continues to increase as renewable production is not accelerating fast enough to meet the rising demand for energy.”

At the same time, energy CFOs are facing their share of obstacles, and survey data revealed their strong desire to improve operations. In fact, 40% of survey respondents cited operational efficiency as their top business challenge for the second half of 2024, while 11% of energy CFOs said their greatest challenge will be accessing capital.

According to Benoit, their operations aren’t nearly as efficient as they would like: “The finance and back-office functions at energy companies can benefit from technology upgrades and consolidations to boost efficiency, while artificial intelligence remains a largely untapped tool in this industry,” he said.

Survey respondents also indicated their biggest working capital management challenge is obtaining better terms from suppliers. Meanwhile, the supply chain remains a potential bottleneck for many energy companies: 29% of respondents said their supply chain and procurement function at least occasionally fails to meet business needs.

Energy M&A activity is healthy

Many energy companies also are working to improve efficiency and drive growth through mergers and acquisitions (M&A) in a transactions market that’s hot right now. Just over half (51%) of energy finance leaders said there’s a moderate probability that their company will participate in at least one deal in the coming 12 months.

“Traditional energy is making a comeback in M&A as upstream consolidation continues, likely driven by renewed confidence in the need for hydrocarbons in the years to come,” said Philip Christy, managing director of Transaction Advisory Services at Grant Thornton Advisors LLC. “This surge comes at the same time that deals in the renewable and energy transition space have moderated.”

The recent interest rate reduction may further accelerate energy M&A opportunities as deal funding becomes less expensive. According to Christy, “energy companies will be well-prepared to derive maximum value from these future transactions if they embrace M&A readiness activities, including comprehensive business planning, financial modeling and assessment of the synergy opportunities that a deal can bring.”

Tapping technology for improved efficiency

Beyond M&A, leaders of companies in the energy space are focused on the new insights and improved efficiency that technology can bring to their organization.

According to the survey, the potential technology implementations that are attracting the most interest from energy CFOs include core enterprise resource planning (ERP) financials (42%) and financial planning and budgeting tools (42%), as well as data analytics and business intelligence tools (39%).

Seth Chaikin, principal of Technology Modernization Services at Grant Thornton Advisors LLC, explained that strong M&A activity in the energy industry is contributing to a heightened interest in core ERP financial technology systems.

“Merging entities often have separate technology systems that need to be consolidated,” said Chaikin. “A common ERP system enables consistent business processes across the organization and helps companies achieve automation, business process efficiencies and strong reporting. For companies that are highly acquisitive, or when a private equity firm is involved, the buyers often bring three or four companies together, and they frequently look to get these companies on the same technology platform.”

The survey also found that a focus on generative artificial intelligence is lagging in the energy sector compared with peers in other industries. Just 19% of energy finance leaders polled said their organizations are using generative AI, compared with 47% of respondents across all industries in Grant Thornton’s Q2 2024 CFO survey.

Funding for energy growth

When asked about growth, more than half (53%) of survey respondents said financing growth with consideration of debt service is among their biggest challenges in managing capital structure. Similarly, 48% of energy finance leaders said structuring with debt over equity is one of their biggest challenges in funding growth.

“Higher interest rates have led to the emergence of private credit as a funding option,” added Benoit. “Energy company finance executives are exploring this source of funding and its more favorable terms, in addition to consideration of commercial lending, family office and private equity sources to meet the challenges around capital.”

Benoit summed up the survey data this way: “While energy company CFOs have a positive outlook on the industry’s future as demand continues to grow, whether or not they’re successful depends on how they position their companies for the future.”

To see additional findings from Grant Thornton’s survey of energy CFOs, visit: https://www.grantthornton.com/insights/survey-reports/energy/2024/energy-cfo-build-momentum-for-growth.

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