Recovery - U.S. E&Ps Return to Profitability After Posting Massive Losses in 2015-16

Higher crude oil and natural gas prices, improved efficiency in drilling and completion and other factors combined to give most U.S-based exploration and production companies (E&Ps) solid financial results in the first quarter of 2017 — a stark contrast to their performance in 2015 and 2016. Better yet, the turnaround is providing E&Ps with the optimism and wherewithal to significantly ramp up their planned capital spending this year and in 2018. It’s also giving them an opportunity to zero in on shale plays with low breakeven costs that will help them maintain profitability even if commodity prices stay flat or sag. Today we analyze the first-quarter financial results of a group of 43 U.S. exploration and production companies.

Recovering from nearly $160 billion in losses in 2015 and 2016, the universe of 43 major significant U.S. E&Ps we’ve been tracking earned $9 billion in operating income in first-quarter 2017 and generated an impressive $24 billion in cash flow. Higher realized prices for crude oil and natural gas and dramatically lower impairment charges primarily drove the return to profitability. This revival of profitability by U.S. E&Ps is greasing the wheels of the ongoing transformation of the E&P sector that we analyze in depth in Piranha!, a new market study of the same 43 E&Ps. Of that universe of companies, 21 focus on oil (60%+ liquids reserves), nine are gas-weighted producers (60%+ natural gas reserves) and 13 are diversified producers. All major U.S. shale/unconventional plays are represented in the combined portfolios of these firms.

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Today we review the upstream operating profits of the Piranha! group of companies and compare the group’s performance in the first quarter of 2017 with how they did in 2015 and 2016. It’s been quite a ride. Oil and gas prices peaked in late 2013 and early 2014, respectively. Natural gas prices started declining in early 2014 and bottomed out at under $2/MMBtu in early 2016. The price has rebounded to more than $3/MMBtu, standing now at $3.22/MMBtu. Oil prices peaked in late 2013 but declined precipitously a year later, plunging from over $100/bbl to under $30/bbl before rebounding to close yesterday (5/23/17) at $51.47/bbl. The fortunes of E&P companies are tied to the swings of the oil and gas markets, which on the downside led to crashing capital investment, cash flow and profitability. The rebound in oil and gas prices, which started about 15 months ago, has led to a revival in their fortunes.   

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