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.
First, let’s briefly review E&Ps’ remarkable rebound in 2021 from heavy pandemic-induced losses in 2020. As we outlined in Nothing’s Gonna Stop Us Now, rising oil and natural gas demand fueled a whopping $152 billion turnaround in results, as the 43 major publicly traded producers we track recorded $86 billion in pre-tax income in 2021 (for perspective, that's just a few billion dollars less than Berkshire Hathaway's 2021 net income) after incurring a net loss of $66 billion in 2020. Not only that, but the industry’s intense focus on controlling costs and maximizing margins made 2021 the most profitable year in at least the last two decades for E&Ps. In fact, they reported income that was two-thirds higher than the previous peak in 2014, when commodity prices were significantly higher. Prices continued to rise in 2022, which led to our prediction of record financial results.
That prediction came true, as the 43 E&Ps reported a record $39.6 billion in pre-tax operating income and $51.3 billion in cash flow in Q1 2022, nearly triple the earnings and double the cash flow in Q1 2021. On a per-unit basis, E&P earnings and cash flow, as shown in Figure 1, reached $32.23/barrel of oil equivalent, or boe (blue bar to far right), and $41.75/boe (orange bar to far right), respectively, in Q1 2022, exceeding the record highs of $25.91/boe and $37.14/boe in the previous quarter. The surge in oil prices is the primary reason for the increase in income as realized prices (gray line in Figure 1) have grown by over $20/boe since Q1 2021 to $53.66/boe.
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About the song
“Proud Mary” was written by John Fogerty and appears as the third song on side two of Creedence Clearwater Revival’s second studio album, Bayou Country. Released as a single in January 1969, it went to #2 on the Billboard Hot 100 Singles chart and has been certified 2x Platinum by the Recording Industry Association of America (RIAA). Ike and Tina Turner’s version of the song, released in January 1971, went to #4 Billboard Hot 100 Singles chart and earned them a Grammy Award. “Proud Mary,” a swampy blues raver with its refrain of “rollin’ on the river” (a line Fogerty borrowed from Will Rogers’ 1935 film, Steamboat Round the Bend), is hard to resist singing along to. Personnel on the record were: John Fogerty (lead, backing vocals, lead guitar), Tom Fogerty (backing vocals, rhythm guitar), Stu Cook (bass), and Doug Clifford (drums).
Bayou Country was recorded in October 1968 at RCA Studios in Hollywood, with John Fogerty producing. Released in January 1969, the album went to #7 on the Billboard 200 Albums chart and has been certified 2x Platinum by the RIAA. “Proud Mary” was the only single released from the LP.
Creedence Clearwater Revival, also referred to as Creedence and CCR, were an American rock band formed in El Cerrito, CA, in 1967 by John Fogerty, Tom Fogerty, Stu Cook and Doug Clifford. They had all played in bands together since 1959, first as The Blue Velvets and then The Golliwogs before settling on the CCR name in 1967. They released seven studio albums, three live albums, 41 compilation albums and 29 singles. The band officially broke up in 1972. They were inducted into the Rock and Roll Hall of Fame in 1993. Tom Fogerty died in September 1990 at the age of 48. John Fogerty continues to record and perform as a solo artist. Stu Cook and Doug Clifford have performed together as Creedence Clearwater Revisited with touring musicians since the 1990s.
