By now you are well aware of the dues increase that will take place for fiscal year 2019 (beginning July 1, 2018). Many of our members believe that dues provide the most significant source of funding for the many programs and services we offer. Dues are very important but, in reality, we generate most of our annual revenues from meetings and educational activities, with roughly 12 percent of AAPG’s total revenue from dues.
Although the Executive Committee is very sensitive to the fact that nobody likes to see the dues amount increase, the reality is that we have little choice, considering our declining dues revenue as our profession is impaired and a natural transition of our more senior members takes place. The number of members who are not paid and with whom we have lost contact is the largest it has been since the mid 1980s. Unfortunately, we don’t expect this trend to reverse in the near term, and AAPG’s dues revenue will continue to shrink and place more financial strain on the organization to continue to provide the high-quality services you have come to value and expect.
Your Executive Committee did not make this decision lightly.
Finances in Perspective
To frame our decision, I wanted to provide you with the current state of AAPG’s finances to help put the dues increase in perspective.
First, some financial background from our latest audited fiscal year (July 1, 2016 – June 30, 2017) in which we continued to be negatively impacted by the industry downturn that began in 2014. Overall, we incurred a deficit of approximately $300,000 for the year – this, despite our flagship revenue-generating event, the Annual Convention and Exhibition, being in Houston, which is, from a financial standpoint, traditionally our strongest venue for hosting ACE.
Overall, operating revenue dropped to $14.5 million, down from an already lower $15.7 million in FY 2016, and down almost 40 percent from revenues of more than $24 million in FY 2014. Our expenses from operations dropped as well during the year and totaled $14.8 million – $4.5 million less than in the prior year. Unfortunately, this was our third consecutive year of running a deficit, coming on the heels of deficits of $3.5 million and $1.7 million in FYs 2016 and 2015, respectively.
Turning to our current fiscal year, which ends June 30, we have budgeted for a deficit of approximately $1.1 million, reflecting the recurring downward trends experienced in previous years, and the fact that our flagship revenue generating event, ACE, is being held in a non-industry venue, Salt Lake City. Although the outcome of our FY 2018 finances will not be known until later this year (pending the outcome of our ACE meeting), we are cautiously optimistic that our deficit will not be as high as budgeted due to stronger than anticipated performance at the Unconventional Resources and Technology (URTeC) meeting in Austin, in which AAPG is a partner, and our London International Conference and Exhibition (ICE) meeting.
We are concerned, however, that without a serious reconsideration of the programs and activities the Association undertakes, we will have very little likelihood of improving our net outcome from operations in the short to intermediate term.
To put this in perspective, we have effectively lost a decade’s worth of revenue growth in two fiscal years, 2015 and 2016, with revenues in 2016 comparable to those revenues from 2007. Our expectation has been and continues to be that revenue growth will be difficult to develop in the short term. As can be demonstrated from the expense numbers above, your Executive Committee and staff have diligently cut and controlled costs where we can. Staff and professional travel, meeting expenses and governance costs all have been significantly reduced. Unfortunately, the decrease in revenues was too much and too fast for the expenses to be brought back in line.
Steps Taken Thus Far
As you are aware, to help reduce the recurring staff costs, in November 2015 a voluntary retirement program was implemented. In February and December 2016, we had more cuts at the staff level as part of our reorganization, with an overall reduction of our total support staff of over 33 percent.
Fortunately, the Association’s finances are backstopped by our Investment portfolio – our “rainy day” fund. This portfolio, which has been expertly managed by the AAPG Investment Committee, has flourished in the bull market over the past couple of years. This has afforded us the opportunity to set aside $3 million to terminate the Association’s defined benefit pension plan and free up future executive committees from the financial swings to which our defined benefit plan subjects us each year. Given our strong portfolio performance, we have still been able to maintain approximately one year of operating expenses in the fund.
As the saying goes, “you can’t cut your way to prosperity.” In the future we need to be aware that so much of what we do as a society is dependent on the surpluses generated by our events, though we anticipate that the rebound from the industry, when it does happen, will take longer for our events and meetings, and may not get back to the same levels as before.
Your Executive Committee has been working diligently on a business plan that considers diversifying our revenue stream with additional profitable activities. For example, the inaugural Super Basins Global Leadership Conference was held recently in Houston and was very well received, generating a modest surplus for the Association. We also continue to look at new ways of leveraging AAPG’s intellectual property and there are several promising opportunities under evaluation.
As we go forward, we will align the organization’s short-term, long-term and strategic goals and objectives with its ongoing financial capabilities. We will continue to target an annual balanced budget with modest surpluses over the long term and ensure our investment portfolio has an annual managed growth target of 5-6 percent over the long term.
However, AAPG cannot rely on investments expectations alone to support future activities and programs. Therefore, it is especially important in an association such as ours that we stop to review and evaluate the myriad of programs we offer on an annual basis.
AAPG has challenges and opportunities. However, I want to assure you that AAPG is financially sound and your Executive Committee will continue to focus on providing value to you as a member through programs and services by strategic deployment of financial resources.