- The number one measure of performance in oil and gas producers is core cash flow. This allows for increased certainty in meeting debt obligations ( the oil industry carries larger levels of debt).
- Future cash flows also help to value a company on a monthly or yearly basis.
- Without future cash flows an oil and gas producer could have financial flexibility problems.
- Net Income could remain consistent, but if cash flow does not increase, financial issue could occur without the ability to cover its debt.
- This is why focusing on Free Cash Flow, cash flow from operations and core cash flow are the most important metrics for the oil and gas industry.
- Cash Flow along with bank credit lines and cash balances provide liquidity for current and future obligations.
- The adequacy of cash flow is used to identify a company's ability to finance capital needs internally versus externally.
The crisis in Yemen has provided a stark reminder of the immediate impact geopolitical events can have on oil prices.
In the wake of the Saudi-led airstrikes, West Texas Intermediate (WTI) jumped over 6% in less than 18 hours. Meanwhile, Brent climbed more than 5%.
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