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Threats And Opportunities For Our Oil And Gas Clients

Threats and Opportunities for our Oil and Gas Clients

They say things come in threes. Firstly the Coronavirus global lockdown, then the  quickest and fastest collapse in investment markets in recent history and then an incredible collapse in oil prices occurring at the same time, which has had a major impact in the oil/gas sector. 

We thought we would put together something for our Woodside clients as the combination of the above events may have affected you, and as a whole Woodside employees are such great supporters of our business. We encourage to put your hand up if you are feeling unsure or wondering what this environment means for you. This discussion is a bit of a reminder of our philosophy, focus and also a few thoughts as to what conversations we will be having with you next.

Our business focus continues to be firstly taking care of our existing clients and to proactively take steps to ensure they remain on track, we also wanted to let you know we do have capacity to see new clients at the moment. If you do know of someone that may benefit from reading this article (to get an understanding of our process) please forward it onto them and we would love an introduction.

The reduction in COVID-19 cases in Western Australia reduces the risk of facilities being shut down and that is wonderful compared to what was expected 6 weeks ago. So in some regard things appear to very slowly be returning to normal.

Of course as Woodside employees, we feel you are more secure than others in WA and, we know you are having to work much harder right now to ensure Woodside remains a great company. Regardless of what position you are in it’s a stressful time for a lot of people and for different reasons.

In the last few years we have written blogs and case studies that provide a taste of our process and the outcomes that have been achieved along the way by many of our clients, see “Karratha Escape Plan” & “The Optimisation Plan”.

Our core focus has always been to help families understand their current circumstances, coach them to define what it is they value about their life, and assist them to map out a pathway to get them where they want to be in the future. Our process helps reduce the noise, complexity and anxiety that many families feel when they don’t have clear financial direction ahead.

For clients that have been with us for years (many of these through the Global Financial Crisis), and for the new clients that have come on board in recent years, our core philosophy, focus and the process we follow hasn’t changed, however over time the strategies we implement do change as market conditions progress. We are pleased that in the current times the focus, process and the strategies we have been implementing, positioned our clients well financially for this pandemic induced shock.

However, these are very different times right now to what we are all used to.

Many in the community are very concerned, some have lost their jobs and don’t know what’s next. Others were very worried about catching this virus and what it means to their family. Many feel helpless that they can’t control many of these outcomes.

Working through the options is difficult, but getting clarity, direction and just having a chat to someone is vital and can be re-assuring. That’s why we have been contacting our clients even more than normal and checking in to see how they are feeling about the current coronavirus circumstances.

Although we are in challenging times we know that many of our clients continue to achieve the below outcomes:

  • They have already implemented a cash flow system that allows them to enjoy their lives now without having the anxiety that they aren’t saving for the future. The buffers built in their accounts means that they aren’t living pay to pay.
  • We have a clear game plan on how to manage and utilise lump sum proceeds from employee share plans or bonuses. We aim to have clients not rely on these sources of income so that the plan doesn’t change significantly if these vary year to year.
  • Those with home loan debt will continue to pay this down and will actually benefit from the reduced interest rates. Those who have been disciplined in their repayment strategies are thankful that they don’t have the debt levels they did years ago. Where people are worried, we are talking to them about the contingencies in place that aim to see them through this.
  • Some with plans to make big lifestyle purchases will be deferring these for a period of time, but not cancelling them all together. So while it’s prudent right now to not overspend on luxury items, it will still be ok to do these in the future for most.
  • Many will continue to build their asset pools with regular savings plans and/or regular super contributions. This may allow the opportunity to buy into some of the weakness and the compounding effect of having these savings plans in place over a period of years is generally significant.
  • Those who have followed our advice closely over the past years and are now debt free, or are reducing their home loans very quickly are building significant equity. They are thinking of the opportunities that could unfold and are asking us how they take advantage of them.

For our clients who were sitting in a situation similar to what’s described above as the Global Financial Crisis (GFC) hit, we did take the opportunity to work their finances harder, buying into assets that had fallen significantly in value. The value of doing this was evident in the decade following the GFC, where investment portfolios grew strongly.

In the blog “5 financial mistakes that keep oil and gas veterans flying out longer than they planned!” we did outline some mistakes we help people avoid. We thought this was a relevant blog to point out again as right now many will be thinking about the various opportunities available.

 

Now for us it’s really about helping families decide what is the right action to take, and when:

  • When do they start taking more risk with their super and how do they do that?
  • Should they still pay off home loans when the rates are so low. Is investing now a better option?
  • Should they start borrowing to invest and if so what do they buy, in who’s name, how much and when?
  • For clients who have been paying investment debt down, do we now stop that and start investing surplus cash again?
  • If at these interest rates the investment portfolios are cash flow positive, should they still be in the high income earners name?
  • Or is it still time to be very cautious given that many believe we are in for a long grinding recession in Australia and globally?

Some brief pointers in relation to what to remember over the next year:

  • Although markets have recovered somewhat over the past few weeks, we do know that this pandemic is not over and neither is the economic and market shock it has caused. For some the fear of missing out on daily market gains can be a hard thing to ignore, but investing needs to be a considered and long term strategy.
  • Markets will continue to be volatile and changes in the way certain industries operate are highly likely to occur in the future, so this needs to be considered in investment and super strategies.
  • Not every company in Australia is in the same position to weather this pandemic, so it’s important to be selective with investment strategies.
  • This market environment is where we think a focus on quality companies and investments should weather the storm well in the recovery phase. These quality companies should have better cash reserves and funding sources to invest heavily into this recovery.
  • Our clients are telling us of people who are moving fully to cash (in their super funds at the moment). People that do this might save some money if markets fall further, but they will be subject to timing risks on the recovery side of this pandemic, as they may miss out on market recoveries and buy back in when it’s too late. There are alternative ways to manage risk in a more appropriate fashion.
  • There are some amazing home loan rates that we are seeing because the banks are very competitive at the moment. There may be some opportunity in this regards to save some costs in obtaining lower interest rate loans. We work with mortgage brokers to find the best solution for you situation.

Historically we know that every market shock starts differently and is always a new event, but the markets eventually recover. How long this current downturn will run for nobody really knows, but getting setup to benefit from the opportunity in an eventual recovery is important.

If you have any further questions of course don’t hesitate to contact us to discuss your thoughts, ideas or concerns on 08 9274 2888.

 

The information and articles as well as the blogs provided on this page are general information/advice only and are not personal advice. The information/advice does not take into account any personal objectives, needs and situations of any individual/s as such prior to making any decisions regarding your investment strategy or acquiring a financial product, you should seek personal financial advice from an authorised adviser. The appropriateness of the information/advice should be considered on an individual basis and advice sought as to suitability. Past performance is not a reliable indicator of future performance. You should also obtain a copy of and consider the Product Disclosure Statement before investing with any fund manager. Bennett Wealth Group is a Corporate Authorised Representative of Bennett Financial Services Pty Ltd (ABN 26 142 752 225) Bennett Financial Services Pty Ltd holds an Australian Financial Services Licence and Australian Credit Licence No. 357917.

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