As the natural resources and utilities sector re-emerges, new challenges lie on the horizon – ranging from regulatory change to the mounting risks posed by cybercriminals. At the same time, there are significant opportunities for treasurers to not only optimise their structures and processes but also to add greater strategic value to the wider business.
To explore how leading treasurers in the energy sector are preparing for the future, against an evolving regulatory and geopolitical backdrop, HSBC focused its second annual Global Liquidity and Cash Management Natural Resources and Utilities Forum around that theme. Held in March 2018 in Houston, USA, the forum attracted over 60 attendees from upstream and downstream companies and was hosted by Lance Kawaguchi, Managing Director, Global Head, Global Banking Corporates, Global Liquidity and Cash Management, HSBC.
David Andrada, Global Sector Head, Natural Resources and Utilities – Global Liquidity and Cash Management, HSBC
Melissa Cougle, Vice President, Integration, Ensco PLC
Tamara Saront-Eisner, Vice President and Treasurer for the US and Americas Zone, Air Liquide
Brook Ballard, Treasury Manager, Cheniere Energy Inc
Moderator: Eleanor Hill, Editor, Treasury Management International (TMI)
A brave new world
In his opening address, Kawaguchi explained how, as a result of the complex and fast-moving environment in which treasurers are operating, they are having to re-engineer their processes, strategies – and people – to stay one step ahead. "This is especially true in the energy sector, where risk and regulatory reporting remain critical issues," he said.
Kawaguchi also outlined how a confluence of external drivers – from geopolitical change to disruptive innovation and cybercrime – is resulting in far-reaching changes in the way firms conduct business. "Corporates must adapt to this brave new world by: embracing technology, striving for continuous improvement, and building talented, agile, and diverse treasury teams. Working closely with industry experts, including banking partners, will also play a key role in future-proofing treasury through having the right set-ups and solutions in place," he said.
The digital revolution
Kawaguchi went on to explain how the bank is providing that collaborative support. Focusing first on the theme of digitalisation, He outlined how the bank is investing USD2.1 billion across the Group until the end of 2020 to make banking simpler, better and faster, for clients.
As well as refreshing the digital experience, the bank is also investing in innovation. "Wholesale customers can therefore expect to see more and more retail-like functionality in the functionality delivered through banking channels," said Kawaguchi. "Mobile is a good example of this and, increasingly, users do not simply consider it to be a tool to manage small transactions, but it is a core element of their banking communications," he said.
"Over the last few years we've been investing in our mobile channel, so much so that our customers have been sending increasingly larger payments. Recently we saw USD2.6 billion of transactions in a single week, and one transaction from a single client exceeded USD1 billion in size."
He finished by saying that, "Innovation is an imperative for us and we are investing to get it right. We see this as key to building stronger client relationships, and to giving you the client the banking experience you require now, and in the future."
Four treasury experts then took to the stage to engage in a dynamic panel discussion about preparing their systems, processes, strategies, and people for the future.
Regulation and reform was the first topic on their agenda. Here, David Andrada gave an insightful overview of the main trends impacting how corporate treasurers are preparing for the future. He explained how protectionist policies across the globe mean that "treasurers now have to be more agile than ever before – and increasingly connected to the macro world."
Andrada also highlighted how real-time payments and digitisation are changing the way treasury operates. With payments now coming in on a real-time basis, seven days a week, "treasurers need to think strategically about how to put those monies to use – even at weekends," he explained. Meanwhile, the treasury function must also be on high alert for fraudulent payments and cyberattacks, which are only increasing, he noted.
Looking specifically at the future of the natural resources and utilities sector, Andrada also spoke about the rise of national oil companies, and how their growing international activity would likely lead treasurers into more joint ventures in the future.
US tax reform and Brexit
The three corporate panellists then homed in on the protectionist point raised by Andrada, explaining their roadmaps for US tax reform and Brexit. Ballard advised the audience that "US tax reform provides a significant incentive to reassess the ROI of your cash, and reconsider how you can utilise it best – whether that be in a location abroad or in the US."
Saront-Eisner then explained some of the challenges her French-headquartered company is facing around US tax reform. "One is the excise tax that will apply to cross-border payments between affiliates of the same company – and Air Liquide is largely funded through intercompany loans, so that will be difficult. The new tax also applies to everything from royalties to interest, and even CapEx, meaning that we have a lot to reconsider."
Although Cougle has been diligently planning for US tax reform, and considering potential restructuring options, she added that Ensco is hesitant to make any firm decisions as yet. "While this might be the most comprehensive reform of the US tax code in the past three decades, it was pushed through Congress in the span of a few months and leads to questions as to whether the reforms could be undone in a similarly short time frame," she said.
As the natural resources and utilities sector re-emerges, new challenges lie on the horizon – ranging from regulatory change to the mounting risks posed by cybercriminals
When it comes to Brexit, Andrada commented that, "Treasurers in the energy sector have a particular incentive to undertake such a review, given the significant number of bank accounts they tend to operate." He said that now is also a good time to revisit the financial products that the company has in place and to understand what the impact may be on those if the UK legal regime changes.
Attracting the best talent
The panellists moved on to discuss the second theme of the session: talent. The panel was in complete agreement that agility and critical thinking would be key attributes of future treasury personnel.
Cougle also highlighted the need to be able to see the big picture and react to changing priorities, while seeing tasks through from start to finish. "Despite the ever-moving priority list, you also need to drive things through to completion. Organisations, including treasury, must continue to execute, no matter what is happening around them," she noted.
One of the challenges the sector faces in finding this great talent, though, is that many experts left the US, or at least the Houston area, during the downturn, said Saront-Eisner. This makes it all the more important to attract younger talent into the sector – and to focus on talent retention. To achieve this, Ballard advised, "showing younger individuals that the company and management team truly care about their employees is a great recruitment and retention tool. This means taking the time to understand what engages younger generations and what their career aspirations are, and then giving them exciting and meaningful tasks to execute on."
The panel also spoke about the specific challenges of recruiting in the energy sector, alluding to the stigma often attached to the industry. On that point, Cougle argued that: "We should be proud of the role our companies play in global exchange and everyday life. The world as we know it cannot function without the energy sector. Old and young, including millennials, drive cars or get in an Uber – and use petroleum products in their everyday lives."
Defending treasury from cyberattacks
The final topic tackled by the panel was cybersecurity and the treasurer's role on the frontline of defence. Andrada started the discussion by stating that: "cyber attackers are increasingly targeting treasury departments, so there needs to be a cultural shift that moves cybersecurity from being an 'IT problem' to being high on every treasurer's agenda." He added that, "not only are the cybercriminals after money, they are looking to steal data as well – and the value of data is another new concept that treasurers need to adjust their mindsets to."
The panel discussed how many of the most effective tools in preventing cybercrime and fraud revolve around people – who tend to be the weakest link. "The power of educating staff about the proper use of systems and the importance of implementing and following thorough processes should not be underestimated," commented Ballard. "By inserting people into processes, having four eyes on payment authorisations over a certain threshold, for example, you can actually turn your team into a tool for mitigating cyber risk."
Cougle added that, "You also have to build up a cultural awareness of the significance of cybersecurity within the team, while also encouraging an environment where any member of the treasury function – no matter how junior – feels able to question the instructions they have received."
Meanwhile, Saront-Eisner explained how important it is for treasurers to "spend time updating their business continuity plan to ensure that they can access their bank accounts and make payments even when their corporate network is down, and when their laptop is out of action." She also suggested utilising the training and resources that banks offer in order to improve treasury's awareness of cybercrime.
Sector-related cyber threats
Having scratched the surface of the cybercrime landscape during the panel session, the final presentation of the day saw Tom Barsi, Senior Vice President, Corporate and Business Development, Carbon Black provide a deep-dive into the specific threats facing the oil and gas sector – and the most effective prevention methods.
"The oil and gas sector is now a top target for threat actors. Attackers are not only after money and data, they are also looking for intellectual property, such as oil exploration strategies, or information related to mergers or acquisitions. Some threat actors will also aim to disrupt your critical infrastructure, or take out parts of your operations, by disabling safety systems and attempting to cause plant explosions, which is precisely what happened to a leading oil and gas company," said Barsi.
The world as we know it cannot function without the energy sector
"When we talk about preventing cybercrime, there's a tendency to think that legacy antivirus software will provide a fair bit of protection. But legacy antivirus software was built decades ago, with the specific aim of stopping malware. Barsi also explained that, "historically, a lot has also been invested in network security. Firewalls, sand-boxing, and so on. Now though, with the exception of denial of service attacks, it's not typically the network that's under attack. It's the data on the endpoints, the servers, the computers, and the critical infrastructure. The criminals are using sophisticated phishing attacks, taking over trusted applications within your enterprise, and extracting data."
At the same time, said Barsi, the way businesses work has changed, as they use more and more applications in the cloud. There is also greater use of consumer technologies within corporate organisations. Together, these evolving threats and business practices require a new approach to cybersecurity.
Protection, Barsi believes, starts with investing in people and education. "Buying next-generation email security is also extremely valuable to protect organisations from suspicious links. Patch management, too, is an important cyber-prevention tool; as soon as a software developer releases an update, it should be installed."
He added that, "another important investment is hiring a threat-hunting team, whether that's internal or a managed security service provider. Carbon Black, for example, offers a service called Cb ThreatSight, which is staffed by a dedicated team of seasoned threat experts who keep watch over your organisation's environment, alert your team to emerging threats, and provide access to critical security services."
In addition, the 'iron box' strategy is a great prevention tool – and is widely used within the oil and gas sector, said Barsi. "In essence, this is about ensuring application control and locking down fixed-use devices to ensure that nothing can change, including execution functions and code. The iron box prevents that change from happening."
As for the treasurer's role in all this, Barsi commented that, "treasury has to be part of the people, process, and tactics in creating the cybersecurity policy, and driving a better approach to protecting the company's assets – both financial and non-financial."
This presentation concluded the event, which was followed by lively discussion and networking over lunch. HSBC Global Liquidity and Cash Management will be hosting another Natural Resources and Utilities Forum for clients in Houston again next year, addressing the topical issues that matter to treasurers in the sector.
Ensco plc (NYSE: ESV) brings energy to the world as a global provider of offshore drilling services to the petroleum industry. For more than 30 years, the company has focused on operating safely and going beyond customer expectations. Operating one of the newest ultra-deepwater rig fleets and a leading premium jackup fleet, Ensco has a major presence in the most strategic offshore basins across six continents.
Air Liquide entered the US market more than 100 years ago. Today, Air Liquide in the US counts more than 20,000 employees in more than 1,300 locations, offering industrial gases and related services to customers in a range of industries, including oil and gas, chemicals, metals, construction, food and beverage, research and analysis, electronics and healthcare.
Cheniere Energy, Inc is an energy company primarily engaged in liquefied natural gas (LNG) related businesses. The company operations through two segments: LNG terminal business and LNG natural gas marketing business. The company owns and operates the Sabine Pass LNG terminal in in Louisiana through its ownership interest in and management agreements with Cheniere Energy Partners, LP (Cheniere Partners), which is a publicly traded limited partnership.
Carbon Black, Inc (formerly Bit9, Inc) is a security company based in Waltham, Massachusetts. The company develops endpoint security software that detects malicious behaviour and prevents malicious files from attacking an organisation. It is an actor in the antivirus, endpoint detection and response and endpoint protection platform space.
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Published: May 2018
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