impairment charges

The sun was shining and wind filled the sails of the 44 major U.S. exploration and production (E&P) companies we track in the third quarter of 2018 as they collectively reported a 35% increase in pre-tax operating income over the previous quarter. It’s been an up-and-down year. Increased efficiency and rising output from the transformation to large-scale, manufacturing-style exploitation of premier resource plays moved the E&P sector solidly into the black in early 2018 after three years of losses. But profits stagnated in the second quarter on a decline in revenues as widening differentials, primarily in the Permian Basin, negated the impact of higher NYMEX prices. Today, we explain how producers overcame the headwinds to resume profit growth in the third quarter, but warn that future returns for certain E&Ps could be jeopardized by the sudden plunge in oil prices.

After posting significant pretax operating losses in 2015-16, U.S. oil-weighted exploration and production companies returned to profitability in the first quarter of 2017. The 180-degree turnaround in peer group results was driven not only by higher oil prices, but by major strategic and operational shifts. Most of the 21 E&Ps we’ve been tracking responded to the plunge in revenue that started nearly three years ago by optimizing their portfolios, shedding properties with higher breakeven costs to focus on core unconventional plays and implementing operational efficiencies that led to sharply lower drilling and completion costs. Today we discuss how, with higher cash flows and profits, crude oil producers are ramping up their 2017 capital spending to generate long-term production growth.

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.