Most of the top financial officers of oil and natural gas companies expect 2023 to bring increases to profitability as a result of post-Covid demand recovery and investors “warming to the industry,” according to a recent survey from BDO USA LLP.

In the face of a potential economic downturn this year, energy companies are still “gearing up for growth,” the firm said in its 2023 Energy CFO Outlook. In its report, BDO surveyed CFOs from 100 energy companies, with half of them running the finances for renewable energy companies and half CFOs at oil and gas companies.

“Competition for capital in energy will be hot in 2023,” said BDO’s Clark Sackschewsky, national leader for Natural Resources Practice. “To stand out from the competition, energy CFOs should continue adhering to financial discipline while making strategic investments that provide a competitive advantage.”

Of the 50 executives that BDO surveyed, 80% of the fossil fuel-focused CFOs said they were expecting profitability increases in 2023, compared to 72% serving the renewable industry.

While profitability expectations are slightly lower this year compared with 2022, when 88% of oil and gas CFOs were predicting profitability increases, BDO reported that 76% have seen revenue increases in the last 12 months. That momentum is forecast to continue.

This compares with the 60% of renewables companies that saw revenue increases last year, though 62% of renewable CFOs have “more optimistic expectations for borrowing” as a result of “the expanded credits and incentives” from the Biden administration’s Inflation Reduction Act (IRA).

Meanwhile, despite having more optimistic outlooks on borrowing opportunities in 2023, 34% of oil and gas CFOs reported a reduction in borrowing options was the top borrowing challenge their company may face. Following that challenge, 32% anticipate that having fully drawn on credit facilities may be a borrowing hurdle.

Renewable energy companies, meanwhile, may see rising costs as a challenge to borrowing, with 36% of the companies’ CFOs listing increased costs as a concern, compared to only 16% of oil and gas CFOs. 

In terms of strategic investments if the economy worsens in 2023, oil and gas CFOs reported they would direct funds toward digital transformations (32%), supply chain management (26%) and workplace technology (18%).

The “more conservative spending plans” among oil and gas CFOs “could be a result of the cautious optimism they’re feeling due to the sector’s rebound, but with expectations of continued headwinds,” BDO noted.

Supply Chain Constraints

Meanwhile, renewable energy company finance chiefs have a slightly less positive outlook on what 2023 may bring for profits as the result of one particular business risk – the supply chain factor.

“For instance, many renewables products, such as solar panels and batteries, require rare minerals,” which now have shortages, BDO noted.

Similarly, the International Energy Agency predicted that the value of clean energy technology markets may triple to $650 billion by 2030. 

Energy CFOs generally responded with more optimism in 2023 compared with 2022 when asked about their perceived risks to business this year. However, supply chain disruptions led the list of potential threats to operations. BDO reported that 25% listed the supply chain factor among this year’s potential risks.

That said, “energy CFOs are much less concerned about natural disasters than they were a year ago – which could indicate many have already taken steps to prepare critical systems where applicable,” BDO said.

In 2022, 56% of CFOs listed natural disasters as a perceived business risk, compared with only 20% this year, “which could indicate many have already taken steps to prepare critical systems where applicable,” the financial firm noted in its report.

IRA’s Impact

Also good news for the industry this year are the increased borrowing opportunities seen as a result of incentives spurred by the IRA.

“The IRA is going to set off a massive competition for talent,” Sackschewky said. “As investment in renewable energy heats up, the organizations that can attract and retain the best talent to make their plans a reality will have an edge.”

Nearly all (92%) of the oil and gas CFOs surveyed said they would revisit their decarbonization plans in 2023, with half saying they would look to buy and use IRA credits to offset total tax liability over the next year. Additionally, 44% of oil and gas CFOs said their companies were looking to buy IRA credits to invest in renewable energy projects.

Speaking on carbon reduction strategies, Sackschewsky added that “oil and gas companies need to evaluate the risks and rewards of different approaches based on their unique strengths, capabilities and capital resources” in 2023.

When asked about their companies’ approaches to carbon reduction under the environmental, social and governance umbrella, 38% of oil and gas CFOs said their companies may look to increase the proportion of alternative energy sources versus hydrocarbons in 2023. 

This compares with only 8% of CFOs responding that their companies would seek to leverage carbon capture, use and storage (CCUS) technology

CCUS trailed the list of carbon reduction strategies CFOs said they were looking into, behind increasing power generation from low-carbon sources (36%), using voluntary carbon markets (32%), expanding into new renewable energy sources (28%), reducing fugitive emissions (28%), divesting from the hydrocarbon business (28%), exploring other carbon reduction strategies (20%) and reducing routine flaring (16%).