There’s an old saw that pessimists are optimists with experience. That may be one reason the post-election burst of investor enthusiasm that briefly drove most E&P stocks higher soon evaporated for oil-focused producers under the weight of eroding prices and uncertainty about future demand. But, surprisingly, investors continued to support the shares of long-downtrodden Gas-Weighted producers, buying into the vision of long-term gains in domestic and LNG-export demand and more favorable pricing. In today’s RBN blog, we analyze the Q3 2024 results for the gas-focused producers we track, which differed markedly from their Oil-Weighted and Diversified peers.
Canadian crude output is rising, requiring new export routes. As traditional pathways face constraints, the U.S. Rockies—especially the Guernsey, WY hub—are emerging as key corridors for moving Canadian heavy crude to downstream markets, including the Gulf Coast.
As we discussed in our first look at Q3 2024 results, Who’ll Stop the Rain, pre-tax operating income and cash flows for the 39 major E&Ps we cover fell 17% and 5%, respectively. The result was driven by a 7% reduction in the average WTI crude oil price that lowered the average quarterly realization by 5% to $35.82/boe. Profits for the Oil-Weighted producers dipped 12% while results for the Diversified producers were down a larger 28%, with the results dampened by a $1.1 billion impairment of U.K. and Permian assets by APA Corp. Still, 27 of the 28 producers in the two groups managed to stay in the black.
Low prices had driven a brutal Q2 2024 for Gas-Weighted producers (see Bad Moon Rising) as the pre-tax operating profits for the 11 companies in that peer group fell into the red. However, in contrast with the other two groups, the average realized price for the gas-focused group rose 6% in Q3 2024 to $14.52/boe. As a result, the group trimmed its net loss by 81% to -$0.12/boe and cash flow rose 17% to $6.71/boe. While six E&Ps reported net losses, impressive capital discipline, a continued focus on shareholder returns and maintaining solid balance sheets, significant weather-related short-term price gains, and optimism about future demand growth built significant investor support during the quarter. Let’s take a closer look.
Shareholder Returns
The Gas-Weighted E&Ps had the best total shareholder return performance of the three peer groups we follow through the first nine months of 2024, with a median gain of 14% (Oil-Weighted -2%, Diversified E&Ps -11%). This is a powerful performance given the 2% median loss of the S&P E&P Index over the same period. Total shareholder return is calculated by combining dividends (orange bar sections in Figure 1 below) with gains or reductions in the share price (blue bar sections). An important note: Results for the group were impacted by Chesapeake Energy’s acquisition of Southwestern Energy, which was completed on October 1, 2024, the first day of Q4. The combined company, now called Expand Energy, did not report data for Southwestern’s Q3 2024 results. The analysis in this blog includes only the Q3 2024 results for Chesapeake. We’ve revised prior-quarter results to remove Southwestern until we can fill the data gap.
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About the song
“Something Good Coming” was written by Tom Petty and appears as the 14th song on Tom Petty and the Heartbreakers’ 12th studio album, Mojo. The song is one of three on the album that were recorded and videoed live at the Heartbreakers’ workshop/studio known as The Clubhouse in Los Angeles. Personnel on the record were: Tom Petty (vocals, acoustic guitar), Mike Campbell (electric lead, slide guitar), Scott Thurston (electric rhythm guitar), Ron Blair (bass), Benmont Tench (organ), and Steve Ferrone (drums, percussion).
The album, Mojo, was recorded at The Clubhouse in Los Angeles between April 2009 and January 2010 and produced by Tom Petty, Mike Campbell and Ryan Ulyate. It was the band’s first studio album together since 2002’s The Last DJ and the band’s first full album with bassist Ron Blair since Hard Promises, released in 1981. Released in June 2010, the album went to #2 on the Billboard 200 Albums chart. Five singles were released from the LP.
Tom Petty and the Heartbreakers were an American rock and roll band formed in Gainesville, FL, in 1974 under the name Mudcrutch. Mudcrutch signed with Denny Cordell and Shelter Records in 1975 and released one single for the label before regrouping as Tom Petty and the Heartbreakers and releasing their debut album for the label in 1976. The album contained the two classic songs, “Breakdown” and “American Girl.” Ten people passed through the band until its final lineup of Petty, Mike Campbell, Benmont Tench, Ron Blair, Scott Thurston and Steve Ferrone. They released 16 studio albums, nine live albums, a soundtrack album, an EP, and 76 singles. They have sold more than 80 million records worldwide. They were inducted into the Rock and Roll Hall of Fame in 2002 and were awarded a star on the Hollywood Walk of Fame in 2017. Tom Petty died in Los Angeles in October 2017 at the age of 66, putting an end to the Heartbreakers. Lead guitarist and songwriter Mike Campbell has released three studio albums with his band, The Dirty Knobs, since that time.
Comments
This was a great blog. Thank you. Is there any way to assess how much of the production increase is related to the unwinding of curtailments rather than capital expenditures? In 2025, production increases may disconnect a bit from CAPEX because of the unwinding of curtailments.