U.S. E&P companies engineered a spectacular recovery from the near financial disaster brought on by the pandemic. They rode a rising tide of commodity prices to generate record profits and cash flows that peaked in mid-2022 when West Texas Intermediate (WTI) crested at $114/bbl in May and natural gas prices breached the $9/MMBtu mark in August. But sustaining that level of return has been an uphill battle against commodity prices that have fallen off significantly from their peak as well as persistent inflation that has burdened the entire economy. In today’s RBN blog, we analyze the impact of this battle on the Q1 2023 results of oil and gas producers and provide an outlook for Q2.
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The 42 oil and gas producers we monitor — every publicly held U.S. E&P with a market capitalization over $500 million, but not integrated energy companies like ExxonMobil and Chevron — recorded back-to-back profitable years in 2021 and 2022. As we outlined in Camelot, pre-tax operating profits and cash flow from operations peaked in Q2 2022. Earnings of $52.5 billion exceeded the total amount earned in all of 2014, when oil prices last exceeded $100/bbl and cash flows topped $64 billion. However, as we reported in Downhill Lullaby, oil and gas prices retreated from the mid-2022 highs in the second half of last year and profits dropped 10% in Q3 and 29% in Q4 as cash flows fell 8% and 21%, respectively. Although we predicted an even “less idyllic” Q1 2023, oil prices showed signs of stabilizing, moderating the impact on E&P earnings.
Oil prices fell just 6% to an average of $77.61/bbl in Q1 2023, but natural gas prices fell off a cliff, plunging 57% from $5.62/MMBtu to $2.55/MMBtu. As shown in Figure 1, the 42 companies in our study universe posted Q1 2023 pre-tax earnings of $19.08 per barrel of oil equivalent ($/boe; $25 billion; blue bar to far right) and generated $29.26/boe ($38.4 billion; orange bar to far right) in cash flow during the first three months of this year, down 29% and 21%, respectively, from the $26.70/boe and $37.11/boe they posted the previous quarter. Earnings were 54% lower than the Q2 2022 peak of $41.50/boe while cash flow was 43% below its Q2 2022 peak of $51.04/boe. Per-unit revenues were $41.23/boe (right end of gray line in Figure 1), $8.18/boe (or 17%) lower than the $49.41/boe realized in Q4 2022 and $22.80/boe (or 36%) lower than the peak of $64.03/boe in Q2 2022.
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About the song
“Wrecking Ball” was written by Maureen McDonald, Mozella, Stephan Moccio, Sacha Skabek, Dr. Luke, Cirkut and David Kim. It appears as the sixth song on Miley Cyrus’s fourth studio album, Bangerz. Released as a single in August 2013, the song went to #1 on the Billboard Hot 100 Singles chart and has been certified 7x Platinum by the Recording Industry Association of America. Personnel on the record were: Miley Cyrus (lead vocals), David Richard Campbell (strings), Stephan Moccio (piano), Steven Wolf (drums), and Cirkut and Dr. Luke (programming).
Bangerz was recorded in 2012-13 at Glenwood in Burbank, CA; NightBird in West Hollywood, CA; Record Plant and Chalice in Hollywood, CA; Conway and Westlake in Los Angeles; Circle House and South Beach in Miami; and MilkBoy in Philadelphia. Produced by Mike Will Made It, Oren Yoel, Rami Samir Afuni, Dr. Luke, Cirkut, Michael McHenry, Pharrell Williams and Kyle Edwards, the album was released in September 2013. It went to #1 on the Billboard 200 Albums chart and has been certified 3x Platinum by the RIAA. Three singles were released from the LP.
Miley Cyrus is an American singer, songwriter, and actress. The daughter of country music singer Billy Ray Cyrus, she got her start in the entertainment industry in 2006 portraying Hannah Montana on the hit Disney Channel television series of the same name. She has released eight studio albums, three live albums, two EPs and 36 singles and has been featured in fourteen motion pictures. Cyrus continues to record and has recently stated that she has no plans to tour again in the near future.
