For the U.S. oil patch, exports are the lifeblood of today’s market. U.S. refineries are operating at more than 90% of their rated capacity and using as much domestically produced light-sweet shale oil as their sophisticated equipment will allow. That means that virtually all of the incremental U.S. unconventional light-sweet crude oil production will need to be piped to export terminals along the Gulf Coast, loaded onto tankers, and shipped to refineries overseas. In today’s RBN blog, we discuss what this undeniable link between crude oil exports and production growth means for U.S. E&Ps and midstream companies — and the future of the oil and gas industry.
Analyst Insights are unique perspectives provided by RBN analysts about energy markets developments. The Insights may cover a wide range of information, such as industry trends, fundamentals, competitive landscape, or other market rumblings. These Insights are designed to be bite-size but punchy analysis so that readers can stay abreast of the most important market changes.
May was a tough month for US oil and gas rig count, with producers ending the month with a fourth consecutive weekly decline (-44 vs April 28). Total US rig count was 711 for the week ending May 26, according to Baker Hughes. Rigs were added in the Permian (+1) and Eagle Ford (+1) this week, while the Anadarko (-5), Haynesville (-3), Gulf of Mexico (-1) and All Other Basins (-1) all posted declines. Total US rig count is down 42 in the last 90 days, and down 16 vs. this same week a year ago.
Weaker supply-demand balances compared with last year have continued to weigh on the natural gas market in May. While domestic consumption and exports were up a combined 3.3 Bcf/d year-on-year, supply gains were even larger, up a net 4.7 Bcf/d year-on-year, according to daily supply-demand data from the RBN NATGAS Billboard report. That left the market ~1.4 Bcf/d longer supply this month to date vs. the same period last year.
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|NATGAS Billboard||NATGAS Billboard - May 26, 2023||2 days 18 hours ago|
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Daily Energy Blog
The feeling is almost palpable among midstreamers: In a fast-changing energy industry, the companies that gather, transport, store and export hydrocarbons need to consolidate and augment — and be smart about how they get bigger. Scale, that’s the key. That — plus complementary assets that provide synergies, lower costs and increase free cash flow, a sizable portion of which can be returned to shareholders as dividends and buybacks — is what investors are looking for. Oh, and don’t forget this important M&A goal: gaining a larger footprint and a more prominent role in the Permian, the dominant U.S. production area. ONEOK, a midstream company heretofore primarily focused on moving NGLs and natural gas, earlier this week announced an $18.8 billion agreement to acquire Magellan Midstream Partners, which is best known for pipelines that transport refined products and crude oil. In today’s RBN blog, we and our friends at East Daley Analytics kick the tires, look under the hood, and give our thoughts on the deal’s pros and potential cons.
There’s been a lot of talk over the last year or so about U.S. E&Ps exerting financial discipline by moderating their investments in growth, paying down debt and returning substantial portions of their free cash flow to investors in the form of dividends and stock buybacks. So, worries in the broader economy that the banking crisis and the specter of a looming recession may restrict access to capital markets shouldn’t be a major concern for the 41 oil and gas producers we monitor, right? As we discuss in today’s RBN blog, the answer isn’t a simple yes or no. The bad news is that the E&P sector still holds quite a bit of debt and that several of the companies we track added to their debt load in 2022. The good news is that total debt levels are down and that the net present value (NPV) of oil and gas reserves — a key factor in determining how much debt an E&P can handle — has soared, which may make it easier for them to borrow money if they need it.
The saying goes, “If you got it, flaunt it,” and the rise of social media has certainly accelerated the ostentatious display of sudden wealth by rock stars, rappers, tech billionaires, star athletes and others. While it might be unseemly for executives at oil and gas companies to indulge in bling from gold chains to $400,000 Maserati GranCabrios to half-billion-dollar mega-yachts, they weren’t shy about displaying their companies’ financial gains last year from surging commodity prices in the form of lavish shareholder returns that in some cases dwarf returns from the traditional dividend giants. In today’s RBN blog, we’ll detail the extraordinary 2022 returns allocated to oil and gas investors and discuss the warning signs that 2023 will be a leaner year.
It would be an understatement to say we’re sensing a trend here. Over the past couple of years, there’s been an absolute frenzy of producer M&A activity in the Permian, much of it involving big E&Ps getting bigger and private equity cashing in on assets they’ve been developing since the 2010s. The latest multibillion-dollar deal involves Ovintiv, whose recently announced plan to acquire the Midland Basin assets of three EnCap Investments-backed producers will nearly double Ovintiv’s oil and condensate output in West Texas, lower its per-barrel production costs, and add more than 1,000 well locations to its inventory. Oh, and via a separate but related deal, Ovintiv will exit the Bakken by selling its assets there to another EnCap affiliate. In today’s RBN blog, we look at what the M&A artist formerly known as Encana is up to.
The pandemic-induced shackles on U.S. E&P capital spending were shattered by rising commodity prices in 2022, and total investment for the 42 producers we follow rose a dramatic 54% over 2021. But E&Ps haven’t abandoned the fiscal discipline or focus on cash-flow generation that allowed them to survive COVID-related demand destruction and resuscitate investor interest. Their 2023 capital budgets generally sustain the pace of Q4 2022 spending and reflect a modest 17% increase over full-year 2022. However, commodity price trends and changes in investment opportunities have resulted in significant shifts in the allocation of the total investment among the major U.S. unconventional plays. In today’s RBN blog, we’ll analyze 2023 capital spending, region by region.
Last August, we titled our review of Q2 2022 E&P financial results Camelot after rising oil prices and surging natural gas realizations drove revenues, profits and cash flows to levels that seemed like an unrealizable dream for producers that had teetered on the brink of financial instability just two years before. Recent year-end results revealed the strongest returns in the industry’s history, much of which were distributed to long-suffering shareholders. But dreams fade and prices retreat, and Q4 2022 results suggest a far less idyllic 2023. In today’s RBN blog, we review the record 2022 performance and more sobering Q4 results.
In marking the third anniversary of COVID’s onset, the Washington Post detailed a study that showed most of us are already shedding the virus-impacted memories of that tedious and often traumatic time to concentrate on looking ahead — a trait scientists label “future-oriented positivity bias.” That transition was clearly evident in the 2022 investment decisions of U.S. E&Ps as the capex budgets of the 42 companies we monitor, pared to the bone during the pandemic, expanded through last year from initial guidance of a 24% increase over 2021 to a final 54% reported increase for the full year. They increased production by 9% year-over-year, but producers haven’t forgotten fiscal discipline or a focus on cash flow generation. In today’s RBN blog, we analyze 2023 capital budgets that generally sustain the pace of Q4 2022 spending and eschew additional increases in a lower commodity price environment.
Punxsutawney Phil presaged six more weeks of winter when he saw his shadow on February 2, the famous groundhog’s annual attempt to predict the arrival of spring that garners national headlines, despite his dismal 39% success rate over the last 150 years. Although we haven’t turned to rotund rodents, we spend a lot of time exploring ways to predict energy industry trends. A far more reliable way to gain early insights into E&P spending and production patterns is by analyzing the year-end results and forecasts issued by the major oilfield services firms, which release their year-end reports well before E&Ps typically do. In today’s RBN blog, we review the data and insights from the reports and conference calls of the major firms that are in constant communication with the major oil and gas producers.
While soaring commodity prices have been the most important driver of record E&P cash flow generation over the past 12 months, shareholders have also benefited from a new, post-pandemic financial discipline that has lowered the industry’s reinvestment rate to an all-time low of 35%. However, the 2022 capital expenditures initially planned by the 42 U.S. producers we track were expected to rise a healthy 24% over 2021 levels and their spending plans for the just-finished year continued to increase as 2022 wore on. While only a handful of E&Ps have released their actual 2023 budgets, their most recent conference call comments suggest that the investment momentum will keep building in the new year. In today’s RBN blog, we analyze producers’ 2022 capital investment and the key indicators for 2023 growth.
One of life’s vicarious pleasures is indulging in some daydreaming about what we’d do with a substantial financial windfall, maybe from a lottery win, a bequest from a long-lost relative, or a five-horse parlay. Thanks to a dramatic surge in post-pandemic commodity prices, U.S. E&Ps are living out that dream as 2022 cash flow from operating activities (CFOA) is on track to quadruple from 2020 lows and more than double from pre-pandemic levels. In allocating those funds, producers face the same kinds of decisions we would all face: ramping up current spending, whittling away at debt, tucking cash away for a rainy day, or distributing funds to family and friends. Possibly influenced by the upcoming holiday season, oil and gas producers turned extremely generous in the third quarter as shareholder returns reached record levels. In today’s RBN blog, we detail the cash-flow allocations made by the 42 publicly owned E&Ps we follow and speculate on future trends.
Storm clouds may be gathering on the economic horizon as concerns about persistent inflation and looming recession roil markets and politics. But for oil and gas producers, the third quarter was the equivalent of a driver putting the top down under a flawless azure sky, dialing up the road tunes, and cruising without a care down an endless highway. Lower oil prices led to a dip in earnings and cash flow after a record-breaking second quarter, but cash still filled producers’ coffers at the second-highest rate in decades. In today’s RBN blog, we review the Q3 results of U.S. E&Ps and discuss what may lie ahead as those storm clouds move closer.
Bragging rights are a big deal in Texas, and we’re not just talking pride about the Astros’ annual rampage through baseball’s post-season. Getting to the top is also a source of immense pride for oil and gas midstreamers, and right now Targa Resources claims the bragging rights as the largest gatherer and processor of associated natural gas in the Permian Basin. Targa’s bold decision to build an integrated gas and NGL business, its timely infrastructure expansions through and after the pandemic, and a recent, accretive acquisition have resulted in a massive footprint where a stunning 25% of forecast Permian gas production growth is expected to take place. But strong competitors such as Enterprise Product Partners, DCP Midstream and Energy Transfer are nipping at Targa’s heels. In today’s RBN blog, we discuss highlights from our Spotlight Report on the company.
Bragging rights are a big deal in Texas, and we’re not just talking pride about the Astros’ annual rampage through baseball’s post-season. Getting to the top is also a source of immense pride for oil and gas midstreamers, and right now Targa Resources claims the bragging rights as the largest gatherer and processor of associated natural gas in the Permian Basin. Targa’s bold decision to build an integrated gas and NGL business, its timely infrastructure expansions through and after the pandemic, and a recent, accretive acquisition have resulted in a massive footprint where a stunning 25% of forecast Permian gas production growth is expected to take place. But strong competitors such as Enterprise Product Partners, DCP Midstream and Energy Transfer are nipping at Targa’s heels. In today’s RBN blog, we discuss highlights from our new Spotlight Report on the company.
Champagne corks were popping in E&P boardrooms and executive suites over the past few weeks as they unveiled record-high second-quarter 2022 earnings and cash flows. The strong financial results in the near-idyllic quarter — pre-tax operating earnings and cash flows surged by 29% and 22%, respectively, from the already elevated Q1 2022 levels — were driven by soaring commodity prices and producers’ strict financial discipline. And the celebrations weren’t limited to E&P headquarters. Shareholders have also benefited as companies passed on the unprecedented largess to their investors. In today’s RBN blog, we analyze how U.S. oil and gas producers distributed their soaring free cash flows and discuss the underlying corporate strategies.
Out of the long, brutal struggles to create a British nation in the Medieval Ages arose the legend of Camelot, an idyllic kingdom that for a “brief shining moment” enabled its inhabitants to bask in peace and prosperity. In the second quarter of 2022, U.S. oil and gas producers that had, for the last two decades, been roiled with severe price volatility, recession, environmental pressures, investor hostility and a pandemic, finally found their Camelot. Rising oil prices and surging natural gas realizations drove per-unit revenues to a 15-year high, and nearly nine out of 10 of the incremental dollars fell straight to the bottom line as producers successfully wrangled inflation to keep costs under control. The result was E&P coffers overflowing with record earnings and cash flows. However, Camelot, in the words of the 1960 musical, was “a fleeting wisp of glory,” and clouds are emerging on the horizon for U.S. E&Ps in the third quarter. In today’s RBN blog, we catalog Q2 2022 results and preview the issues that could impact third-quarter earnings.