The cacophony of Black Friday promotions may make us all wonder if the “giving thanks” part of the fourth Thursday of November has been subsumed by rampant consumerism. But we suspect that E&P executives sat down to more traditional celebrations of gratitude as the upstream part of the oil and gas industry rebounded nicely in Q3 from five consecutive periods of declining profits and cash flows. In today’s RBN blog, we analyze Q3 2023 E&P earnings and cash flows and provide some perspective on the past and future profitability of U.S. oil and gas producers.
Over the past three years we’ve chronicled the remarkable recovery of the U.S. E&P sector from its dramatic price crash at the onset of the pandemic in early 2020. The recovery was fueled by rising commodity prices and the strategic transformation to a fiscally conservative model that prioritizes cash flow and shareholder returns. Producers’ earnings reached historic highs in Q2 2022, but steadily declined in subsequent quarters with oil and natural gas prices. As we explained in Bottoms Up, results reached a recent nadir in Q2 2023. Then, the 40 E&P companies we monitor reported pre-tax operating earnings of $12.18/boe and cash flow of $22.95/boe, down 71% and 55%, respectively, from the high five quarters ago.
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.
However, as we also pointed out in that blog, the health of the industry and its future outlook were far from dire. The Q2 2023 results matched earnings in Q1 2021, when the E&P sector staged a dramatic recovery from $84 billion in losses in 2020 and posted the highest pre-tax earnings in the previous decade. Not only were Q2 2023 results historically strong, but we also noted that rising commodity prices suggested an improving outlook for the second half of this year. When Q3 ended on September 30, average WTI oil prices had rebounded to $82/bbl — 11% higher than the previous quarter — and Henry Hub natural gas prices were up about 15% to $2.66/MMBtu, which solidified expectations about a turnaround in results.
The rebound in earnings and cash flow for our 40 E&Ps actually surpassed most projections. Earnings for the group increased 42% over Q2 2023 to $23.7 billion, or $17.16/boe (blue bar to far right in Figure 1). Cash flow amounted to $38.1 billion ($27.59/boe; orange bar to far right), 22% better than the prior quarter. Both gains significantly exceeded the 13% rise in average realized prices (gray line) to $39.16/boe. Thirty-nine of the 40 companies in our study universe posted a profit in Q3 2023, with only EQT Corp. reporting a pre-tax operating loss. Earnings for the Gas-Weighted peer group tripled on the recovery in realizations while profits for the Oil-Weighted and Diversified producers rose 48% and 29%, respectively.
Figure 1. E&P Earnings and Cash Flow, Q1 2022-Q3 2023. Source: Oil & Gas Financial Analytics, LLC
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About the song
“Baby Come Back” was written by Peter Beckett and J.C. Crowley. It appears as the second song on side one of Player’s debut album, Player. The song was written about Player bandmates Beckett and Crowley’s recent breakup with their girlfriends. Released as the first single from the album in October 1977, it went to #1 on the Billboard Hot 100 Singles chart and has been certified gold by the Recording Industry Association of America. It has been covered by a few artists over the years and has appeared in television shows, movies and a Swiffer television commercial. Personnel on the record were: Peter Beckett (lead, backing vocals, guitar), J.C. Crowley (piano, backing vocals), Ronn Moss (bass, backing vocals), John Friesen (drums, maracas, congas), and Wayne Cook (synthesizers, clavinet, piano).
The album, Player, was recorded during the summer of 1977 and produced by Dennis Lambert and Brian Potter. Released in September 1977, it went to #26 on the Billboard 200 Albums chart. Three singles were released from the LP.
Player is a British-American rock band formed in Los Angeles in 1976 by Brit Peter Beckett, along with Americans J.C. Crowley, Ronn Moss and John Friesen. They have released six studio albums, three compilation albums and 12 singles. Twenty members have passed through the group since its inception. Two versions of the band continue to tour with one original member in each band. Group founders Peter Beckman and Ronn Moss share joint custody of the trademark to the name “Player,” so there is Peter Beckman’s Player and Ronn Moss’ Player that can tour separately, legally, and possibly at the same time.
