Executive summary
The current environment of dynamic change is forcing energy industry leaders to reexamine their capital allocations. Tailored technology can empower data-driven decisions and form a volatility buffer, while providing clarity for leaders, investors and customers — while helping companies retain talent and prepare for the competitive future ahead.
This year, most companies are focusing their technology investments on efficiency, savings and customer experiences. At least, they were.
In our Grant Thornton Digital Transformation Survey earlier this year, 93% of leaders said they are investing more in technology. “We expect to go strong with digital transformation,” one energy industry leader said, and the survey’s results showed that the top priorities for tech investments were reduced operational costs, increased revenue and customer satisfaction.
However, many energy leaders are reprioritizing their investments in light of regulatory changes, surging demand, price fluctuations, supply chain issues and geopolitical tensions. “There’s so much anxiety around how quickly things are changing,” said Grant Thornton Technology Modernization Senior Manager Alexander Jackson.
In this fast-paced environment, leaders are often forced to make decisions from information that’s only updated once a quarter. “With a lot of the legacy systems, companies are only able to do a reforecast or plan once every few months, if that,” Jackson said. “But the investments that companies are trying to make are changing so quickly, especially in energy. A lot of the things you planned for last quarter could change within a week, and you need to be able to react to that.”
“There’s a tremendous wealth of data that’s available,” said Grant Thornton Energy Industry Leader Tyler Jones. “The question is, are companies using data the way that they should be, to make decisions?”
“There’s traditionally been a lack of capital allocated to IT at energy companies, because of a focus on operational execution over data,” Jones said. To build agility for today’s volatility, energy leaders might need to make technology both a priority — and a tool — for capital allocation.
Volatility buffer
When energy companies move from traditional periodic reports to more dynamic capital allocation solutions, they can better adapt their investments to manage the market’s constant changes. Cloud-based enterprise platform management (EPM) tools can integrate with and consolidate information from enterprise resource planning (ERP) tools and other systems, giving users a central interface for the information or pushing it out to business intelligence tools.
“It all comes back to being efficient in how you’re using your money. In the energy industry, especially in the midmarket, you have to allocate and leverage your assets in the most efficient ways possible,” Jackson said. “For instance, knowing that a tax credit is going to be removed, you should be able to see how that credit affects your business based on historical values, and then be able to move money in preparation.”
“It becomes a volatility buffer, especially now,” Jackson said. “It helps you maintain a more stable state.” Dynamic capital allocation can help to buffer volatility across capacity planning, market diversification and other areas.
Capacity planning
Jackson recalled a company that needed more efficient capacity planning. “They needed to understand where they had the most capacity, and where they could offload efficiently without going over — they were losing so much money by not being able to make those decisions in real time. They were not able to react to growing market trends, tariffs or any kind of extra costs.” The company implemented technology that allowed leaders to see their ROI more immediately, so they would not miss opportunities for savings.
Real-time insight is important for managing both infrastructure and services. Jones said, “Think about how many vendors are working on one oil well development. For an oil field service provider who’s the ninth vendor scheduled, you don’t want to show up before the eighth one has started.”
New markets
Agile planning can also enable more fundamental reallocations, taking advantage of adjacent opportunities like moving different materials through your storage and transportation network. “You can diversify your assets and then know, based upon the KPIs that you determine are most important to your company, that these are good investments within a few clicks,” Jackson said. “You can take that to leaders and help them make quality decisions that the company can stand by.”
Technology can then help you track when these investments or others aren’t likely to provide the expected returns. “Sometimes, leaders don’t realize something is a bad investment until they lose all of their money,” Jackson said. “You need to know if something’s a good investment well ahead of that point and then be agile enough to adjust how you’re allocating your money.”
To make quick decisions on important allocations, you need to give leaders the right information at the right time.
Clear confidence
“Technology can bring together data from different sources to let leaders dig deeper into potential allocation decisions, like whether they should invest in a performance improvement project versus a cost optimization project,” Jones said.
Finance teams need to provide tailored and timely information to answer those questions. Jackson recalled, “For one energy company, their big wish list item was a waterfall of their entire gross margin process — including volume, capacity, different hedge pricing models and about 10 other aspects,” Jackson said. “They wanted to see how everything was flowing from within their capital, based on investments and changes through their forecast, and then be able to make decisions on what they’re investing and how they’re allocating — like two different pumps in two different regions.”
Once leaders had the technology, they had fresher and clearer insight into their decisions. “That was a huge win for them. That’s something they hadn’t been able to do on their legacy systems, because spreadsheets crashed, they couldn’t get files from other people, or there were disconnects and timing issues.” Now, the team could present leaders with the right information at the right time. “They knew that, when they went to leaders with information, it wasn’t going to change. They wouldn’t have to come back a couple of days later saying, ‘Someone didn’t give us this spreadsheet, or this one was broken.’ Everything was unified and pulled in.”
Executive access
Even better, executives can interface with tools directly to get precisely the information they need. “Leaders can have very specific management report pages,” Jackson said. “They can be read-only and very high-level, so they don’t have to get into the weeds of everything going on in the planning cycle, but they see exactly what they want, highly tailored to the audience. Some CFOs want to be more operational, so they want to see some operational metrics and KPIs. They need to get exactly the information they want, so they can be the hands-on CFO they want to be.”
Executives aren’t the only ones making decisions — when your customers and investors have better information about your capital allocations, that can help illustrate your stability and future prospects.
Customer and investor confidence
“It’s important to provide confidence to customers and others who are making purchase decisions,” Jackson said. “They want to make sure that your company is going to be around a year from now, and that your prices are not going to jump 100% in a couple of months.”
“Being able to show that you are consistent in a time of volatility is going to be more and more important,” Jackson said.
Investors are also seeking data-driven confidence. “The high-risk, high-reward profile is a little less desirable right now. More people are looking for stability. A company where stakeholders can know they’re going to get a certain amount of gains — even if they don’t get 20 to 30%, they might get 10% when everything else is going down — that feels like a safe bet. When there’s so much uncertainty, you want to be that safe bet for your investors,” Jackson said.
Dynamic capital allocation can provide confidence to both customers and investors, but it can also help energy companies reach another important audience — workers.
Talent retention
“There’s an intangible benefit in the happiness of your workforce,” Jackson said. When a company has inefficient and time-consuming financial reporting processes that sometimes need to be rerun due to manual errors, talent retention is at risk. “It can be very grueling.”
When companies implement a system for data-driven capital allocation and reporting, the first beneficiaries are the employees. “There can be a quick ROI of less late nights,” Jackson said. “It helps the employee engagement on those initiatives, as people start seeing that they have less of a workload, they’re able to get home to their families, and they are not going to have to worry about doing tedious rework over and over again. It also factors into new people wanting to work there.”
“Building out technology shows that you’re investing in making your employees lives better — it sends the message that this is a place where you have all the best tools to make your work successful,” Jackson said.
With greater efficiency, companies can also build more capacity for productivity in their workforces every day. Rather than struggling with manual processes, teams can improve the range and depth of analysis they provide. “If you develop proactive ways to manage that capacity, you can quickly pay back the cost of this kind of technology investment,” Jones said.
Data-driven capital allocation can help energy companies compete for customers, investors and talent, now and into the future.
Future standard
“This sort of dynamic planning is going to become table stakes, because you’re going to start seeing reforecasts and reprojections monthly, or weekly, in the midterm to long-term future,” Jackson said.
Data-driven systems for capital allocation can also provide a foundation for AI solutions that help drive growth with a competitive advantage. “AI isn’t at the core of these solutions now, but they can definitely leverage AI to help you work more effectively and get better results. You can use different types of AI to create optimization tools, like in the supply chain space for capacity planning — or volume planning, especially for midstream companies.”
“You’re going to have to understand how to adapt to energy needs, and how to adapt to the different types of energy needs that will grow with our new AI boom,” Jackson said. “There’s a saying that ‘If you’re not first, you’re last,’ and it’s more and more prevalent that the first movers — the companies that can proactively move on different economic trends — are the ones making the most money and making the biggest moves in the industry.”
Contacts:
Head of Energy Industry
Grant Thornton Advisors LLC
Partner, Audit Services, Grant Thornton LLP
Tyler Jones serves as the Head of Energy Industry, and is an Audit Services partner in the Dallas office.
Dallas, Texas
Industries
- Energy
- Manufacturing, Transportation & Distribution
Service Experience
- Audit & Assurance Services
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