One of the most compelling Greek myths is the story of Sisyphus, a man condemned by the gods to eternally push a giant boulder to the top of a mountain, only to have it crash back down to the valley just short of his goal. His plight is not a bad metaphor for the long-term historical trend of U.S. E&Ps, which neared pinnacles of financial stability in 1999, 2008, 2014 and 2020 — just before price drops sent returns plunging. Producers seem to have ducked out from under the curse recently, recording record post-pandemic profits in 2021 and 2022, then settling into an extended period of stable, elevated returns. However, deteriorating gas realizations have at least paused the boulder’s climb for all E&Ps and sent it rolling back for gas-weighted producers. In today’s RBN blog, we analyze the overall positive returns for Oil-Weighted and Diversified producers and the more dramatic impact of low pricing on the Gas-Weighted E&Ps.
Recovering from a pandemic low of $16.55/bbl in April 2020, the WTI monthly oil price exceeded $70/bbl in June 2021 and has stayed above that mark ever since. Prices exceeded $100/bbl for five months in early 2022 before retreating but have generally stayed in the $75-$85/bbl range subsequently. As a result, average realizations, or upstream revenues per barrel of oil equivalent (boe), for 2021-Q2 2024 (gray line inside dashed black box in Figure 1 below) have exceeded every year between 2015-20. Profits have stabilized at a historically elevated level and every E&P in our Oil-Weighted and Diversified peer groups has reported a net pre-tax operating profit since Q2 2021. While earnings peaked in 2022, returns have been sufficient for producers to subsequently reward shareholders with substantial returns in the form of dividends and share buybacks.
Gas producers have not been so fortunate. The group reported steady profitability as the Henry Hub average monthly price climbed above $4/MMBtu in September 2021 and peaked above $8/MMBtu a year later. But a price plunge to near the $2/MMBtu level in early 2023 crippled financial results, although most producers in our peer group remained in the black through belt-tightening and production cutbacks.
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