Out of the long, brutal struggles to create a British nation in the Medieval Ages arose the legend of Camelot, an idyllic kingdom that for a “brief shining moment” enabled its inhabitants to bask in peace and prosperity. In the second quarter of 2022, U.S. oil and gas producers that had, for the last two decades, been roiled with severe price volatility, recession, environmental pressures, investor hostility and a pandemic, finally found their Camelot. Rising oil prices and surging natural gas realizations drove per-unit revenues to a 15-year high, and nearly nine out of 10 of the incremental dollars fell straight to the bottom line as producers successfully wrangled inflation to keep costs under control. The result was E&P coffers overflowing with record earnings and cash flows. However, Camelot, in the words of the 1960 musical, was “a fleeting wisp of glory,” and clouds are emerging on the horizon for U.S. E&Ps in the third quarter. In today’s RBN blog, we catalog Q2 2022 results and preview the issues that could impact third-quarter earnings.
First, let’s look at commodity prices. Rising crude oil prices have dominated the headlines this year, and the WTI spot price peaked in Q2 2022 at $108/bbl — 15% higher than the previous quarter, 65% higher than the year-ago quarter, and the highest since Q2 2008. And gas producers, which had been struggling with tepid prices for most of the last decade and a half, were finally rewarded with surging realizations. The Henry Hub spot price broke through the $6.00/MMBtu barrier in April for the first time since November 2008 and soared to average $7.52/MMBtu for the quarter. This represented a 52% increase over the previous quarter and a 150% boost over the year-ago period.
These rising prices produced glittering Q2 2022 numbers. As shown in Figure 1 below, the 42 E&P companies we monitor posted record pre-tax operating profits of $52.8 billion ($41.56 per barrel of oil equivalent, or boe) in the April-through-June period and record cash flow of $64.8 billion ($51.11/boe). On a per-unit base, earnings were $9.27/boe (29%) higher than the previous quarter and nearly triple the Q2 2021 results. Cash flows rose by $9.42/boe, or 22%, from Q1 2022 and were more than double the $24.97/boe recorded in the year-ago quarter. First-half 2022 earnings were nearly $7 billion higher than full-year 2021 results, and the $52.8 billion in Q2 2022 profits exceeded the total amount earned for all of 2014, when oil prices last exceeded $100/bbl. Company cash flows are on pace to surpass $200 billion for all of 2022.
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