Financial Planning and Forecasting in the Oil and Gas Industry

Abstract

The high capital-intensive nature of oil and gas firms, coupled with the high price volatility of their prices, necessitates continuous financial planning and forecasting, since they are the most effective tools of financial policy. Financial planning helps oil and gas firms formulate policies, which help in the management of resources even in the midst of constraints and their exposure to financial risk. These are done through effective budgeting processes, which provide opportunities to plan cash flows and hedge against instability in oil and gas prices. With financial forecasting, firms are able to predict financial challenges and initiate corrective measures to help smooth out earnings and meet their financial obligations in periods of price instability and revenue shortfalls. Effective financial planning and forecasting assist firms formulate strategies, plan for the future, and align their goals across the entire organisation.