Daily Energy Blog

The Uinta Basin is no Permian when it comes to drilling activity and production volumes, but the folks behind what may be the biggest M&A deal in Uinta history say the oil-production economics in parts of the quirky-as-heck play in northeastern Utah compare very favorably with the best of the Permian’s Delaware and Midland basins. And where else will an astounding 85%-plus of the produced hydrocarbons come out of the ground as high-quality waxy crude? In today’s RBN blog, we discuss the recently announced plan by SM Energy and non-op specialist Northern Oil & Gas (NOG) to acquire XCL Resources in a pair of deals valued at $2.55 billion. 

While many larger E&Ps have been growing bigger through massive, headline-grabbing acquisitions, EOG Resources — by market cap, the second-largest non-integrated U.S. producer — has been expanding for a quarter century now by focusing on the stealthy exploration and development of new resource plays. The results of EOG’s long-standing strategy have been impressive, and include finding and development (F&D) costs that are significantly lower than its Oil-Weighted peer group and a higher-than-average reserve replacement rate. In today’s RBN blog, we analyze the scope and impact of EOG’s singular focus on organic growth instead of M&A. 

After thoroughly alienating their investor base over more than two decades of boom-and-bust cycles, U.S. E&Ps won investors back in the early 2020s by radically transforming themselves from high-risk to high-yield vehicles. Fueled by surging crude oil and natural gas prices in 2022, producers generated massive free cash flows — and spectacular shareholder returns that topped 10% during the late-2022 peak. Prices and cash flows subsequently retreated, however, and skeptics worried about the sustainability of producers’ high-return strategy. Would debt repayment, dividends and share buybacks sink? In today’s RBN blog, we‘ll review the Q1 2024 cash allocation of the major U.S. E&Ps with a spotlight on current dividend yields. 

No doubt about it, most of the headline-grabbing oil and gas M&A activity lately has involved large, publicly owned producers gobbling up other good-sized E&Ps, lock, stock and barrel. But there are other ways to increase scale and improve operational efficiency, as evidenced by privately held WildFire Energy’s bolt-on acquisition frenzy in the relatively sleepy northeastern Eagle Ford, aka the East Eagle Ford. In less than three years, with one bolt-on acquisition after another, WildFire — named in anticipation of the company’s aggressive expansion strategy — has morphed from a small player in the often-overlooked area into one of the largest producers there, with a laser focus on maximizing returns to its management and private-equity owners. In today’s RBN blog, we’ll look at the E&P and its rapid rise. 

A macro view of U.S. exploration and production (E&P) company performance over the last quarter century reveals repetitive boom-and-bust cycles driven by periodic extremes in crude oil pricing, including price crashes in 2008, 2014 and 2020. That history contrasts with the remarkable stability in West Texas Intermediate (WTI) realizations since mid-2021 as the industry got its footing post-pandemic. Assisted by a new commitment to financial discipline, producers have generated relatively stable, historically solid overall quarterly earnings and cash flows. But the devil’s in the details, and in today’s RBN blog we delve into peer group and individual company performance as well as overall industry trends for Q1 2024. 

Permian-focused M&A activity may grab all the headlines, but don’t forget about the Eagle Ford. Over the past couple of years, a steady stream of big-dollar deals have been announced in the South Texas shale play, most of them tied to efforts by growth-oriented E&Ps to increase their scale, improve their operational efficiency and expand their inventory of top-tier drilling sites. As we’ll discuss in today’s RBN blog, the dealmaking has continued this spring, most recently with Crescent Energy’s announcement that it will be acquiring SilverBow Resources. 

Another day, another mega-deal between top-tier oil and gas producers — or so it seems. Now, it’s ConocoPhillips and Marathon Oil’s turn, and you’d be hard-pressed to find a more logical pairing among the ever-shrinking list of big E&Ps that hadn’t already found a partner during the ongoing frenzy to consolidate. In today’s RBN blog, we examine ConocoPhillips’s newly announced, $22.5 billion agreement to acquire Marathon Oil with a look at their similar histories, their complementary assets, and what will now be their joint effort to boost shareholder returns. 

The transition of U.S. E&Ps to capital discipline has led to historic shareholder returns and won back legions of investors who had virtually abandoned the industry until a few years ago. But while it might be tempting to conclude producers must finally have their financial houses in good order, a lot of us have witnessed a few boom-and-bust cycles in our time and remain hypervigilant for any signs of financial instability, especially considering that commodity prices could weaken at any time. In today’s RBN blog, we analyze the impact of lower price realizations and capital allocation decisions on the balance sheets of the major U.S. independent oil and gas producers. 

U.S. E&Ps’ dramatic strategic shift from prioritizing growth to focusing on cash flow generation and shareholder returns has resulted in more earnings-call talk about dividends and share buybacks and less discussion about efforts to replenish and build their proven oil and gas reserves — a critically important factor in establishing company value. The emphasis on financial results has largely masked a sizable increase in the costs E&Ps are incurring to organically replace their reserves and a significant decrease in the volumes replaced. In today’s RBN blog, we’ll analyze the weakening in reserve replacement metrics over the last two years, a trend that has led many producers to grow their reserves through M&A. 

As we’ve frequently chronicled, 2022 was a golden year for U.S. exploration and production (E&P) companies and their investors, as soaring commodity prices triggered record cash generation to fund the highest levels of shareholder returns of any American industry. But Camelot didn’t last forever, and the twin impacts of lower hydrocarbon prices and rising inflation inevitably eroded cash flows in 2023. The good news is that these fiscally disciplined producers still recorded the second-best results of the last decade to fund historically strong shareholder returns. In today’s RBN blog, we detail the 2023 cash allocation of the 41 major U.S. E&Ps that we cover. 

Growth for growth’s sake. In the early years of the Shale Revolution, that’s what it was all about. Backed by billions of dollars in Wall Street borrowings, E&Ps plowed vast piles of cash into increasing production. It was the era of “Drill baby drill!” And we all know what happened next. Rabid production growth contributed to oversupply and crude oil prices crashed. But resilient E&Ps clawed their way back by adopting what we now know as capital discipline, initially in fits and starts. Then, after the COVID price meltdown, they went all-in, elevating free cash flow generation to Job #1 and returning a significant portion of cash flow to shareholders. It worked! Financial markets started to think of E&Ps more as yield vehicles than growth plays. But it is in the DNA of oil and gas producers to grow. And now that U.S. crude prices are above $85/bbl, could we see a backslide toward organic growth — a 2024 rendition of “Drill baby drill”? In today’s RBN blog, we’ll explore the historical context of E&Ps’ transition to capital discipline and what it tells us about what’s coming next. 

U.S. E&Ps have just concluded discussions of their Q4 and full-year 2023 results and, as usual, the view of analysts and investors can be summed up by one question: What have you done for me lately? But while the collective results of the 44 producers we track were off from the previous quarter and a record 2022, there’s a lot to be said for how well they held up through a period of unusually low natural gas prices. In fact, if you take a step or two back for a longer-term perspective you’d see a strong historical performance that suggests E&Ps really have learned how to do well through commodity price ups and downs. In today’s RBN blog, we analyze the 2023 results of a representative group of major U.S. producers and look ahead to how 2024 may shake out. 

When legendary University of Texas football coach Darrell Royal was asked how he approached important games, he frequently said, “You dance with the one who brung ya,” which meant sticking with the strategy that produced previous success. After struggling through a period of extreme price volatility in 2014-20, U.S. E&Ps finally locked onto a game plan that works: They wooed back investors and regained financial stability by focusing on generating free cash flow and returning a lot of that bounty to shareholders. In today’s RBN blog, we analyze E&Ps’ 2024 capex and production guidance, which shows that producers have embraced Royal’s concept of sticking with what works. 

The drivers behind most upstream M&A the past couple of years have been consistent — namely, to gain scale (mostly in the Permian) and the economies that come with it, boost free cash flow (and share more with shareholders), and replenish reserves to keep the good times rollin' into the 2030s. There are hints of all that in California Resources’ recently announced $2.1 billion agreement to acquire Aera Energy, creating what would be California’s largest crude oil producer. But in other ways the deal is as different as, well, California and Texas themselves. In today’s RBN blog, we examine the planned acquisition, what it reveals about the companies, and the pros and cons of operating in the nation’s most populous, least-friendly-to-hydrocarbons state. 

A Super Bowl game (and halftime show) for the ages followed up only hours later by a made-in-heaven combination of two of the largest, most admired E&Ps in the super-hot Permian? It doesn’t get any better than this, unless you’re a Taylor Swift fan too — in which case, it may be impossible for you to “shake it off.” In today’s RBN blog, we examine the newly announced plan by Diamondback Energy and Endeavor Energy Resources to combine into a Travis Kelce-sized Permian pure play with more than 800 Mboe/d of crude oil-focused production and more than 6,000 well locations with breakevens of $40/bbl or less.