Capital Spending

The Trump administration has been easing regulations, accelerating project approvals, and proclaiming its undying support for the oil and gas industry. But much of the oil patch is in the doldrums. Crude oil prices are stuck in the low $60s/bbl, upstream capex and oilfield activity are down, and some U.S. producers are struggling. In today’s RBN blog, we’ll discuss the contrast between what the industry had hoped 2025 would bring and how things stand now.

There’s an old saw that pessimists are optimists with experience. That may be one reason the post-election burst of investor enthusiasm that briefly drove most E&P stocks higher soon evaporated for oil-focused producers under the weight of eroding prices and uncertainty about future demand. But, surprisingly, investors continued to support the shares of long-downtrodden Gas-Weighted producers, buying into the vision of long-term gains in domestic and LNG-export demand and more favorable pricing. In today’s RBN blog, we analyze the Q3 2024 results for the gas-focused producers we track, which differed markedly from their Oil-Weighted and Diversified peers. 

Brutal arctic cold may have chilled broad swaths of the U.S. last month, but the scorching pace of upstream M&A activity continued to be red hot, with nearly $20 billion in deals announced in January after a record-setting 2023. Last year’s transaction value totaled an astounding $192 billion, a mark 79% higher than the previous 10-year high and more than the previous three years combined. Why the surge? A wide range of factors influenced corporate decisions to grow through acquisitions rather than organic investment, including commodity prices, equity values, debt levels, operating costs, and production trends. In today’s RBN blog, we’ll analyze M&A trends through several statistical lenses and provide some insights into 2024 activity. 

Rapidly rising prices for goods and services have plagued the economy since the onset of the pandemic — and led the Federal Reserve to ratchet up interest rates to help cool things off. Despite strong signs that overall inflation is receding, the negative impacts are far from over. Like every other sector, the U.S. E&P industry faced soaring costs as it struggled to restore production after widespread shut-ins in the spring of 2020. However, in recent Q2 2023 earnings calls E&P executives provided guidance that suggested that costs had not only plateaued but might actually decline in 2024 and beyond. In today’s RBN blog, we discuss updated 2023 capital spending guidance for U.S. oil and gas producers and their early outlook for 2024 investment.

What a difference a year makes! The summer of 2022 was a golden age for U.S. E&Ps that embraced a dramatic shift in their business model from prioritizing growth to a focus on maximizing cash flows and emphasizing shareholder returns. Oil prices over $90/bbl and gas prices hovering about $7/MMBtu filled their coffers and funded lavish increases in share repurchases and dividends. But those golden days quickly faded as oil prices retreated and gas prices plunged 66% to just above $2/MMBtu. In today’s RBN blog, we explain how E&Ps are scrambling to sustain shareholder return programs in the face of shrinking cash flow.

We’re now in the midst of the summer vacation season, but a recent survey showed that just two out of five Americans are planning a trip that requires a flight and/or hotel stay — the fact is, inflation has whittled away at discretionary income. U.S. E&P companies are in a similar boat. After a brutal decade marked by intense commodity price volatility, oil and gas producers over the past couple of years have won back investors with a new fiscally conservative approach that prioritizes harvesting free cash flow to fund surging shareholder returns. But more recently, lower commodity prices and persistent inflation have significantly eroded the funds available for dividends and share repurchases. In today’s RBN blog, we analyze the increasingly difficult cash allocation decisions oil and gas producers made in Q1 2023 and are likely to face in future quarters.

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.

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.

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.