After languishing since midsummer, the share prices of U.S. oil and gas producers surged after Election Day on a wave of optimism that the sector would flourish under the new administration. However, stocks quickly gave up most of the gains on lackluster Q3 2024 results and a great deal of uncertainty about how — or even if — President-elect Trump’s oft-quoted goal to “drill baby drill” to lower energy costs would impact the strategies and results of the publicly traded E&Ps, especially the 15 major Oil-Weighted producers we cover. In today’s RBN blog, we delve deeper into the impact of the Q3 results of the oil producers on shareholder returns, cash allocation, leverage and capital investment, including the first announcements of 2025 budgets.
Financial
As 2023 was drawing to a close, folks with 401(k) plans and IRAs were wondering whether stocks would have another great year in 2024. Many of us tracking oil and gas E&Ps were asking a similar question about upstream M&A: Is there any way to match the consolidation frenzy that started in mid-2020 and didn’t let up? The answer is, yes — 2024 was another barn-burner year for acquisitions. (And for Wall Street and our investments!). In today’s RBN blog, we discuss highlights from our new Drill Down report on the past year in producer M&A.
Boosting America’s hydrocarbon output was a major plank in the 2024 Republican platform, and Donald Trump’s recent victory has stimulated a lot of optimism about the U.S. upstream sector. The nomination of Liberty Energy CEO Chris Wright as Energy Secretary confirmed that “drill, baby, drill” will be a mantra in the new administration. However, over the past few years, U.S. producers have dramatically shifted their focus from growth at any cost to strict financial discipline focused on maximizing free cash flows and shareholder returns. In today’s RBN blog, we analyze the Q3 2024 results of the major U.S. E&Ps we follow and look for early clues about how their senior executives might react to the renewed federal enthusiasm to rapidly accelerate drilling.
Even with all the headline-making deals we’ve seen in the North American oil and gas industry over the past two or three years, producers and midstream companies are still at it. And the M&A, the post-acquisition divestitures and the acreage swaps aren’t confined to the Permian, which has seen more than its share of big-dollar transactions lately. In fact, as we discuss in today’s RBN blog, some of the biggest deals the past few months have involved production assets in the booming Montney in Western Canada, the generally sleepy Piceance in western Colorado, the quirky-as-heck Uinta in Utah, and — on the midstream side of things — a trio of natural gas pipelines in the Midwest.
Just over three years ago, Cabot Oil & Gas — Coterra Energy’s corporate predecessor — was focused exclusively on producing natural gas in the Marcellus Shale. But unlike other gas-centric E&Ps like EQT Corp., Chesapeake Energy and Antero Resources, Cabot decided it was time to diversify. In October 2021, it merged with Cimarex Energy, an oil-and-gas producer in the Permian and the Anadarko, to form Coterra. Now, Coterra has doubled down on diversification with a plan to acquire oil-weighted Permian assets from privately held Franklin Mountain Energy and Avant Natural Resources for a total of $3.95 billion in cash and stock. In today’s RBN blog, we discuss the deals and why Cabot/Coterra decided to “go its own way.”
The multibillion-dollar acquisitions that have become almost routine in the upstream sector the past few years are typically accompanied by asset rationalization — in other words, a thoughtful look at which elements of the pro forma company make sense followed by the divestiture of those that don’t. In many cases, a key aim of that rationalization process is trimming any debt associated with the acquisition itself. In today’s RBN blog, we’ll discuss the big steps Chevron has been taking to rework its portfolio — and sell off up to $15 billion in assets — as it inches toward closing on its $60 billion purchase of Hess Corp.
The upcoming presidential election has filled the airways with discussions around crucial issues, some with dramatic short-term (yet highly variable) impacts and others that will play out over several years. The impact of the critical short-term issue facing oil and gas producers today — historically low natural gas prices — varies depending on the structure of individual company portfolios. In today’s RBN blog, the last of our four-part series, we analyze the effect of lower gas prices on the revenues, cash flows, investment, leverage and cash allocation of Oil-Weighted E&Ps and discuss how they are adapting.
The recent bankruptcy filing by Tupperware, once a staple of nearly every kitchen, is yet another reminder that long-term corporate success depends on managing through the ever-changing business environment. Many blogs have been written about the ultimate impact on oil and gas producers of the decades-long shift to lower-carbon energy sources, but E&Ps face short-term challenges as well, one of which is the recent plunge in natural gas prices. In today’s RBN blog, we analyze the effect of lower gas prices on the revenues, cash flows, investment, leverage and cash allocation of producers with a rough balance of oil and gas production and discuss how these Diversified producers are adapting.
E&P investors have historically been a skittish lot, and for good reason. In the second half of the 2010s, the S&P E&P Index had as many sudden ups and downs as Coney Island’s famous Cyclone roller coaster, culminating in a near crash in early 2020 as equity prices bottomed out at one-tenth their peak. A fairly smooth annual return of nearly 7% over the 2021-to-Q2 2024 period has wooed money back to a sector that now prioritizes shareholder returns. But wariness remains, especially as natural gas prices cratered to three-decade summer lows. In today’s RBN blog, we analyze the balance sheets and budgets of the U.S. gas-focused producers we track to determine if there are causes for concern.
One of the most compelling Greek myths is the story of Sisyphus, a man condemned by the gods to eternally push a giant boulder to the top of a mountain, only to have it crash back down to the valley just short of his goal. His plight is not a bad metaphor for the long-term historical trend of U.S. E&Ps, which neared pinnacles of financial stability in 1999, 2008, 2014 and 2020 — just before price drops sent returns plunging. Producers seem to have ducked out from under the curse recently, recording record post-pandemic profits in 2021 and 2022, then settling into an extended period of stable, elevated returns. However, deteriorating gas realizations have at least paused the boulder’s climb for all E&Ps and sent it rolling back for gas-weighted producers. In today’s RBN blog, we analyze the overall positive returns for Oil-Weighted and Diversified producers and the more dramatic impact of low pricing on the Gas-Weighted E&Ps.
Through a pair of newly announced, multibillion-dollar acquisitions, ONEOK is following up on its game-changing purchase of Magellan Midstream Partners by gaining additional scale, significantly increasing its role in NGLs and adding a huge crude oil gathering system in the Permian. The new deals are designed in large part to help ONEOK “feed and fill” its gas processing plants, takeaway pipelines and fractionators. In today’s RBN blog, we’ll discuss the details and implications of ONEOK’s newly announced plan to acquire EnLink Midstream and Medallion Midstream.
There’s been a frenzy of M&A activity in the Permian Basin the past couple of years, and in recent months many of the acquiring E&Ps have reviewed their expanded base of assets, determined which acreage, wells and future well sites are core to their business going forward, and initiated the process of divesting the rest. At the same time, others — including some producers that were part of the merger mania — are on the hunt for what they see as underappreciated assets with the potential to shine. Folks, we’re in the early stages of what you might call “The Great Permian Reshuffling” — a rapid-fire exchange of upstream assets in the nation’s most prolific shale play. In today’s RBN blog, we discuss a few of the most noteworthy “bolt-on” deals and what they tell us.
The term “exploration and production company” has been widely used for only four or five decades, but the activities it represents have a history that dates back to the first oil well drilled by Edwin Drake in Titusville, PA, in 1859. Ever since that world-changing event, discovering and developing new sources of oil and gas has remained the industry’s passion, exemplified by wildcatters and, more recently, by the technological wizards of the Shale Revolution. To this day, every major public upstream company still invests in finding and developing reserves — except one. In today’s RBN blog, we examine the unique approach taken by Diversified Energy Co., which has grown substantially by ignoring the “E” part of E&P.
There’s been a frenetic scramble among oil and gas producers through the early 2020s to acquire top-tier acreage and production assets they think they will need to survive and thrive. Some of those acquisitions are still being done through smaller deals such as acreage swaps, but the expansion mode of choice for most has been big-time M&A, which in a single multibillion-dollar deal can add years to a company’s inventory life or perhaps give it a stronger foothold in a key production region or two. In today’s RBN blog, we discuss Devon Energy’s recently announced $5 billion acquisition of Grayson Mill Energy, yet another private-equity-backed E&P cashing in on the smart moves it has been making.
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.