RBN Energy

Thursday, 2/02/2023

Pretty much everywhere you look, there’s a focus on decarbonizing the global economy, and a lot of those discussions start with the transportation sector. It generated 27% of U.S. greenhouse gas (GHG) emissions in 2020, putting it at the top of the list, just ahead of power generation and industrial production; combined, the three sectors account for more than three-quarters of the nation’s GHG emissions. For personal transportation, most of the attention has been on electric vehicles (EVs), but since the commercial transportation sector is largely powered by diesel and jet fuel, the push for decarbonization in trucking, air travel, and shipping has largely focused on ways to produce alternative fuels that reduce GHGs. Among those are ultra-low-carbon fuels called electrofuels, also referred to as eFuels, synthetic fuels, or Power-to-Liquids (PtL). In today’s RBN blog, we explain what eFuels are and how they compare to other alternatives, how they are produced, and what opportunity there might be to make a dent in the consumption of traditional transportation fuels.

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Daily Energy Blog

Thursday, 01/05/2023

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.

Tuesday, 12/27/2022

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.

Wednesday, 12/07/2022

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.

Wednesday, 11/23/2022

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.

Wednesday, 11/02/2022

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.

Wednesday, 08/31/2022

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.

Tuesday, 08/23/2022

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.

Tuesday, 07/12/2022

Just two years ago, the onset of the pandemic slashed the share prices of many oil and gas producers and the idea of parking cash in a U.S. E&P seemed to make as much sense as leaving your Porsche on a midtown street with the keys in it and the motor running. But times — and commodity prices — have changed, and hydrocarbon producers have transformed themselves into cash-flow-generating machines that attract the sagest investors. Want proof? Warren Buffett’s Berkshire Hathaway recently purchased another 10.4 million shares of Occidental Petroleum (Oxy) for over $500 million, bringing its stake in the company to a substantial 16.4%. In today's RBN blog, we detail how the major U.S. E&Ps are allocating their cash flow to keep investors happy.

Sunday, 07/03/2022

We’ve written a lot lately about how U.S. E&Ps, whipsawed over the last decade by extreme price volatility and negative investor sentiment, have adopted a new fiscal discipline that de-emphasizes production growth and prioritizes generation of free cash flow to reduce debt and reward shareholders. But what about midstreamers? They too have been buffeted in recent years by volatile commodity prices, eroding investor support, shifting upstream investment patterns, and finally, a global pandemic. Midstream companies face a different set of challenges than oil and gas producers in repairing their balance sheet and restoring investor confidence, however, mostly because midstream investment decisions are determined both by downstream market changes and by E&Ps’ development and production activity — including producers’ ever-increasing focus on the Permian at the expense of other basins. In the encore edition of today’s RBN blog, we discuss highlights from RBN and East Daley’s Spotlight Report on Western Midstream Partners and how the master limited partnership has been working to reduce its debt and make the most of its strong base in the Permian’s Delaware Basin.

Tuesday, 06/28/2022

The oil and gas industry has historically been roiled by global economic and political crises, from the oil embargo in 1973 to the Great Recession of 2008 to the onset of the global pandemic in early 2020.  However, amid the economic and political turmoil from the war in the Ukraine, rampant inflation and supply chain disruptions, E&P companies in recent weeks reported strong results for the first quarter of 2022, riding the wave of rising commodity prices as record volumes of cash flowed into corporate coffers. Producers successfully absorbed service cost increases and resisted calls to abandon their profits-focused fiscal discipline to generate Q1 2022 pre-tax operating earnings and cash flows that were up 25% and 12%, respectively, from the two-decade-high results recorded in the last quarter of 2021. In today’s RBN blog, we detail the industry’s outstanding results and preview its performance for the rest of the year.

Wednesday, 06/08/2022

We’ve written a lot lately about how U.S. E&Ps, whipsawed over the last decade by extreme price volatility and negative investor sentiment, have adopted a new fiscal discipline that de-emphasizes production growth and prioritizes generation of free cash flow to reduce debt and reward shareholders. But what about midstreamers? They too have been buffeted in recent years by volatile commodity prices, eroding investor support, shifting upstream investment patterns, and finally, a global pandemic. Midstream companies face a different set of challenges than oil and gas producers in repairing their balance sheet and restoring investor confidence, however, mostly because midstream investment decisions are determined both by downstream market changes and by E&Ps’ development and production activity — including producers’ ever-increasing focus on the Permian at the expense of other basins. In today’s RBN blog, we discuss highlights from RBN and East Daley’s Spotlight Report on Western Midstream Partners and how the master limited partnership has been working to reduce its debt and make the most of its strong base in the Permian’s Delaware Basin.

Wednesday, 05/25/2022

The pace of multibillion-dollar M&A activity among oil and gas producers may have slowed a bit from 2020 and 2021, but big deals are still happening. Just last week, publicly held Centennial Resources Development and privately held Colgate Energy Partners III announced plans for a $7 billion “merger of equals” that will combine two midsize E&Ps in the Permian’s Delaware Basin to form one of the area’s larger producers. Each of the companies brings similar and complementary production assets to the deal, as well as corporate leaders very much in sync about the significance of scale in today’s increasingly concentrated upstream sector — and the importance of returning a big chunk of free cash flow to investors. Speaking of investors, an extraordinary 12% stake in the combined Centennial and Colgate will be held by the pro forma company’s management — that’s about 12x the norm among its peers. In today’s RBN blog, we discuss the Centennial/Colgate merger and what’s driving the ongoing consolidation in the U.S.’s most prolific hydrocarbon play.

Friday, 04/22/2022

The 43 large U.S. E&Ps that we monitor posted record earnings in 2021 and tripled their cash flow — an extraordinary turnaround from a very tough 2020. But as big a story, at least for investors, is how those oil and gas producers are allocating their surging cash reserves. Their dramatic strategic transformation from growth at any cost to maximizing returns is expected to result in 2022 yields approaching 10% for some E&Ps, rates higher than the much broader S&P 500 sector and more than double the payouts of the oil majors, the former dividend kings. In today’s RBN blog, we discuss the cash-flow allocation of the major E&P companies and explain what it means for investors.

Thursday, 04/07/2022

With soaring oil prices dominating recent headlines, it’s no surprise that profits and cash flows for the U.S. exploration-and-production (E&P) sector rebounded dramatically in 2021 from heavy, pandemic-induced losses in 2020. Rising crude oil and natural gas demand fueled a whopping $150 billion turnaround in results, as the 43 major publicly traded E&Ps we monitor recorded $86 billion in pre-tax income after incurring a net loss of $66 billion in 2020. Oh, and by the way, 2021 was the most profitable year in at least the last two decades for producers, which reported income two-thirds higher than the previous peak in 2014, when commodity prices were significantly higher. In today’s RBN blog, we compare producers’ 2021 performance with 2020 and 2014 and explain why results should be even stronger this year.

Sunday, 04/03/2022

The Biden administration’s March 31 announcement that it will release an average of 1 MMb/d of crude oil from the Strategic Petroleum Reserve over the next six months was an acknowledgement of sorts that U.S. E&Ps won’t be ramping up their production enough in the near term to bring down oil or gasoline prices. It seems like a good assumption because, while the 40-plus crude oil and natural gas producers we monitor have indicated they are planning a 23% increase in capital spending this year and an 8% increase in production, further examination reveals that those numbers are somewhat misleading — the real gains will be significantly smaller. In today’s RBN blog, we scrutinize producers’ spending plans and production outlooks by peer group and company-by-company.