What is liquidity risk for Petro Stopping Center?
Petro_Stopping_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
| $ million | ||||||
|---|---|---|---|---|---|---|
| Related amounts not set off in the balance sheet | ||||||
| At December 31, 2024 | Gross amounts of recognized financial assets (liabilities) | Amounts set off | Net amounts presented on the balance sheet | Master netting arrangements | Cash collateral (received) pledged | Net amount |
| Derivative assets | 17,908 | (1,149) | 16,759 | (5,374) | (273) | 11,112 |
| Derivative liabilities | (16,060) | 1,149 | (14,911) | 5,374 | 92 | (9,445) |
| Trade and other receivables | 12,307 | (7,732) | 4,575 | (1,072) | (90) | 3,413 |
| Trade and other payables | (16,494) | 7,732 | (8,762) | 1,072 | 8 | (7,682) |
| At December 31, 2023 | ||||||
| Derivative assets | 13,180 | (831) | 12,349 | (3,265) | (569) | 8,515 |
| Derivative liabilities | (10,243) | 831 | (9,412) | 3,265 | 104 | (6,043) |
| Trade and other receivables | 9,749 | (5,704) | 4,045 | (392) | (140) | 3,513 |
| Trade and other payables | (11,708) | 5,704 | (6,004) | 392 | 35 | (5,577) |
(c) Liquidity risk
Liquidity risk is the risk that suitable sources of funding for the Company's business activities may not be available. The Company's liquidity is managed centrally with operating units forecasting their cash and currency requirements to the central treasury function. Unless restricted by local regulations, generally subsidiaries pool their cash surpluses to the treasury function, which will then arrange to fund other subsidiaries' requirements, or invest any net surplus in the market or arrange for necessary external borrowings, while managing the Company's overall net currency positions. While there is the potential for concerns about the energy transition to impact banks' or debt investors' appetite to finance hydrocarbon activity, we do not anticipate any material change to the Company's funding or liquidity in the short to medium term as a result of such concerns.
The Company benefits from open credit provided by suppliers who generally sell on five to 60-day payment terms in accordance with industry norms. The Company utilizes various arrangements in order to manage its working capital and reduce volatility in cash flow. This includes discounting of receivables and, in the supply and trading business, managing inventory, collateral and supplier payment terms within a maximum of 60 days.
It is normal practice in the oil and gas supply and trading business for customers and suppliers to utilize letters of credit (LCs) facilities to mitigate credit and non-performance risk. Consequently, LCs facilitate active trading in a global market where credit and performance risk can be significant. In common with the industry, the Company routinely provides LCs to some of its suppliers.
The Company has committed LC facilities totaling $5,350 million at December 31, 2024 (2023 $7,650 million), allowing LCs to be issued for a maximum 24 month duration. The facilities are held with 10 international banks..
In certain circumstances, the supplier has the option to request accelerated payment from the LC provider in order to further reduce their exposure. The Company's payments are made to the provider of the LC rather than the su
Source: Item 14 — Other investments (FDD pages 131–208)
What This Means (2025 FDD)
According to the 2025 FDD, liquidity risk for Petro Stopping Center refers to the potential unavailability of suitable funding sources for the company's business operations. The document states that the company manages its liquidity centrally, with operating units forecasting their cash and currency needs to the central treasury function. Subsidiaries typically pool their cash surpluses, which the treasury function uses to fund other subsidiaries' needs, invest net surpluses, or arrange external borrowings while managing the company's overall net currency positions. Petro Stopping Center anticipates no material change to the company’s funding or liquidity in the short to medium term.
The company benefits from open credit provided by suppliers, who generally offer payment terms ranging from five to 60 days, aligning with industry norms. To manage working capital and reduce cash flow volatility, Petro Stopping Center uses arrangements such as discounting of receivables and managing inventory, collateral, and supplier payment terms within a maximum of 60 days in the supply and trading business.
Furthermore, the document mentions the use of letters of credit (LCs) as a standard practice in the oil and gas supply and trading business to mitigate credit and non-performance risk. Petro Stopping Center routinely provides LCs to some of its suppliers and has committed LC facilities totaling $5,350 million as of December 31, 2024, allowing LCs to be issued for a maximum 24-month duration. These facilities are held with 10 international banks. If these facilities were not available, this could result in renegotiation of payment terms with suppliers such that payment terms were shorter.