Until the fall in crude oil prices over the past few days, U.S. oil and gas producers had been basking in the glow of the highest oil prices in years. Not surprisingly, in the first quarter of 2018 the 44 major U.S. exploration and production companies we track reported the highest quarterly profit and cash flow since the 2014-15 oil market crash brought many to the edge of a financial abyss. These producers put themselves into a position to benefit from the commodity price recovery by implementing dramatic strategic shifts and an operational transformation that emphasized operating efficiency, portfolio high-grading and financial discipline. Now, with oil prices softening somewhat, the prospects for continued profitability growth for the E&P sector as a whole are mixed. Today, we do a deep dive into the results and outlook for the companies in the Oil-Weighted, Diversified, and Gas-Weighted peer groups.
In Part 1 of this blog series, we explained that the pre-tax operating profits of the 44 E&P companies we cover doubled to $10.31 per barrel of oil equivalent (boe), or $10.6 billion, in the first quarter of 2018 from $5.5 billion ($5.55/boe) in the same period last year. All but one of the companies in our universe were profitable in 2018’s first quarter. The strongest crude oil prices since the fourth quarter of 2014 drove revenues to nearly $37 billion, or $35.87/boe — $4.10/boe higher than in first-quarter 2017. At the same time, producers maintained firm control on costs. Lifting costs were slightly higher at $11.07/boe (compared with $10.78/boe in the first quarter of 2017), primarily because of higher price-related severance and ad valorem taxes. DD&A (depreciation, depletion and amortization) charges continued a multi-year decline, falling by 7.5% to $11.02/boe. Exploration expenses were also slashed — to $693 million in first-quarter 2018 from $2.1 billion in the same period a year earlier. Impairment charges rose slightly to $2.8 billion, primarily because EQT Resources took $2.4 billion in write-downs after the closing of its $8.8 billion acquisition of Rice Energy. Cash flow amounted to $25.4 billion ($24.72/boe), up 23% from the $20.7 billion ($20.88/boe) posted in the first three months of last year.
It’s not surprising that the higher oil prices resulted in the Oil-Weighted Peer Group posting the largest profit of our three peer groups in the first quarter of 2018, earning $5.7 billion (blue rectangle in Figure 1) or $18.50/boe, with every company in the black. Cash flow grew to $10.6 billion (yellow rectangle), equal to $34.42/boe — 15% better than a year ago. The Diversified E&Ps earned $5.1 billion (red rectangle in Figure 2) in the first quarter and generated nearly $11 billion in cash flow. The Gas-Weighted E&Ps posted a first-quarter net loss of $248 million, or $0.82/boe, but that result was skewed by the $2.0 billion loss by EQT Resources, which stemmed from its $2.4 billion impairment charge. Excluding the impairments, the gas-focused peer group would have earned $2.2 billion, 22% higher than the $1.8 billion earned in the first three months of 2017.
NATGAS Permian is a weekly natural gas fundamentals analysis focusing entirely on the key market drivers within the Permian basin. The report contains details and forecasts around natural gas production, demand, pricing, and a summary of pipeline outflows and capacities from the Permian to neighboring regions.
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“(I Got You) I Feel Good” was a hit single for the incomparable James Brown in 1964. Recorded at Criteria Studios in Miami, FL, the Brown-penned single quickly rose to #1 on Billboard’s Rhythm and Blues singles chart, where it stayed for six consecutive weeks. It also reached #3 on the Billboard Hot 100, making it the highest charting single of his career. The song featured the alto saxophone of longtime bandmate Maceo Parker, as well as the unique guitar stylings of a newcomer to the James Brown Orchestra, Jimmy Nolen. Nolen, whose guitar is featured on all of Brown’s recordings through 1970, single-handedly created the blueprint for funk guitar that is still being used today. His sound, combined with James Brown's writing and arrangements, and non-paralleled vocal prowess, literally invented funk music.
The career of James Brown — "The Godfather of Soul" — spanned from 1953 until his death from heart failure at the age of 73 in December 2006. He was inducted into the Rock and Roll Hall of Fame in 1986, and received a Lifetime Achievement Award at the 34th Annual Grammy Awards and from the BET Awards. He released 63 studio albums, 15 live albums, and 144 singles.
