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Cruisin' - Natural Gas Producers Shine In Another Sterling Quarter for U.S. E&Ps

Storm clouds may be gathering on the economic horizon as concerns about persistent inflation and looming recession roil markets and politics. But for oil and gas producers, the third quarter was the equivalent of a driver putting the top down under a flawless azure sky, dialing up the road tunes, and cruising without a care down an endless highway. Lower oil prices led to a dip in earnings and cash flow after a record-breaking second quarter, but cash still filled producers’ coffers at the second-highest rate in decades. In today’s RBN blog, we review the Q3 results of U.S. E&Ps and discuss what may lie ahead as those storm clouds move closer.

As we reported in Camelot, our blog on Q2 earnings, the 42 top publicly traded E&Ps we monitor took advantage of the highest oil prices in 14 years and surging gas realizations to post record quarterly earnings of $52.8 billion, which exceeded the $43.3 billion earned for the full year 2014, when oil prices last exceeded $100/bbl. In Q2, Oil-Weighted E&Ps posted earnings of nearly $50/barrel of oil equivalent (boe) produced, 150% higher than a year ago, and the Diversified producers were not far behind at $46/boe. Cash flows for the overall group totaled $65 billion in Q2 2022, up 170% from Q2 2021. The industry reported a 7% year-over-year increase in costs as lower depreciation, depletion and amortization (DD&A) charges partially offset a rise in cash costs, primarily price-related production taxes. We noted at the end of the blog that oil prices had retreated by over $10/bbl midway through the third quarter, suggesting that the Q3 2022 earnings would fall short of “Camelot” levels, but remain historically robust.

That forecast proved to be on target. Although the average West Texas Intermediate (WTI) oil price declined 14% from the previous quarter, revenue for the 42 E&Ps we track averaged $60.30/boe in Q3, just 6% lower than the $64.10/boe realized in Q2 2022, partially buoyed by higher natural gas prices. Realizations were 48% higher than in Q3 a year ago. E&Ps posted Q3 2022 pre-tax operating earnings of $49.6 billion ($37.69/boe), 9% below Q2 2022 results but 84% higher than in Q3 2021, still a historically significant performance, as shown in Figure 1.

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