Quarterly Results

U.S. E&P companies engineered a spectacular recovery from the near financial disaster brought on by the pandemic. They rode a rising tide of commodity prices to generate record profits and cash flows that peaked in mid-2022 when West Texas Intermediate (WTI) crested at $114/bbl in May and natural gas prices breached the $9/MMBtu mark in August. But sustaining that level of return has been an uphill battle against commodity prices that have fallen off significantly from their peak as well as persistent inflation that has burdened the entire economy. In today’s RBN blog, we analyze the impact of this battle on the Q1 2023 results of oil and gas producers and provide an outlook for Q2.

Nearly 300 million COVID vaccine doses have been administered in the U.S., and normal life is returning to public places across America. Actual fans are replacing cardboard facsimiles in ballpark seats, corner pubs and corner offices are filling up, and family gatherings now feature hugs instead of half-inch squares on a Zoom screen. And another powerful antidote, in the form of higher oil prices, has spurred a significant revival in the fortunes of the pandemic-battered upstream oil and gas industry. The spring-of-2020 crude oil price crash hit the E&P sector like a tsunami, shattering capital and operating budgets, upending drilling plans, eviscerating equity valuations, and raising concerns about whether some companies could generate sufficient cash flow to keep the lights on. Remarkable belt-tightening allowed most producers to survive, and the swift rise of oil prices beginning last fall dispelled the COVID clouds.  But the recovery in profitability and cash flow generation was slow. Today, we review the dramatic surge in E&P profits and cash flows in the first quarter of 2021.

March’s crude oil price crash hit the E&P sector like a tsunami, shattering capital and operating budgets, upending drilling plans, and eviscerating equity valuations. The initial responses by producers to the price collapse included a flood of capex reductions, corporate belt-tightening, and scattered production shut-ins. But first-quarter earnings reports issued in late April and early May provided the first detailed insight into the financial wreckage the crisis unleashed on U.S. E&Ps. It wasn’t pretty. The plunge in the WTI oil price to $20/bbl at the end of the first quarter triggered a combined $60 billion in impairments of oil and gas reserves across the 41 E&Ps we track, as well as a 16% decline in average revenue per barrel of oil equivalent (boe) from the pre-pandemic fourth quarter of 2019. More trouble may be ahead: the average oil price in the second quarter is on track for a 35% decline from the first quarter, which will dramatically impact the cash flows that allow companies to pay their staff, keep the lights on, and hold creditors at bay. Today, we analyze the first-quarter earnings results of our representative sample of U.S. producers and take a look forward to the potential effect of lower pricing on second-quarter earnings.

The third quarter of 2018 was a moment in the sun for U.S. exploration and production companies. The 44 major companies we track reported a 35% increase in pre-tax operating income over the previous quarter and seven-fold increase from the year-ago period on rising commodity prices and narrowing differentials in some key regions. Oil-Weighted producers outside the infrastructure-constricted Permian posted generally higher realizations, and a number of Permian-focused E&Ps minimized the impact of takeaway constraints by employing basis hedges, utilizing firm transportation contracts and reducing their operating costs. Diversified producers saw higher quarterly per-unit profits thanks to the tilt of their portfolios toward oil. And as lower Appalachian differentials lifted the realizations of Gas-Weighted producers, portfolio readjustments and the liquids content of production also positively impacted their profitability and cash flow. Today, we analyze third-quarter results by peer group, and discuss the potential impacts of the sudden plunge in oil prices this fall.

Until the fall in crude oil prices over the past few days, U.S. oil and gas producers had been basking in the glow of the highest oil prices in years. Not surprisingly, in the first quarter of 2018 the 44 major U.S. exploration and production companies we track reported the highest quarterly profit and cash flow since the 2014-15 oil market crash brought many to the edge of a financial abyss. These producers put themselves into a position to benefit from the commodity price recovery by implementing dramatic strategic shifts and an operational transformation that emphasized operating efficiency, portfolio high-grading and financial discipline. Now, with oil prices softening somewhat, the prospects for continued profitability growth for the E&P sector as a whole are mixed. Today, we do a deep dive into the results and outlook for the companies in the Oil-Weighted, Diversified, and Gas-Weighted peer groups. 

With oil prices higher than they’ve been in some time, it’s no surprise that the 44 major U.S. exploration and production companies we track reported — as a group — the highest quarterly profit and cash flow since 2014. Regaining a solid financial footing has been a long, painful struggle for crude oil and natural gas producers, who slipped into a river of red ink after the crude oil price collapse in late 2014 and 2015. After implementing a dramatic strategic and operational transformation, the industry returned to the black in 2017 despite a mid-year oil price dip, generally weak gas prices, and lingering write-downs from massive portfolio shifts. Now, strengthening oil prices and continued operational and financial discipline have lifted our E&Ps well above breakeven and suggest a higher trajectory for the remainder of the year. Today, we dive into first-quarter 2018 financial reporting by leading E&Ps to identify the drivers of a remarkable recovery.

U.S. oil and gas companies currently have hedge protection in place for less than one-fifth of their expected 2016 production, and the strike price of the remaining derivatives is significantly lower than in previous years. With a bleak gas price outlook for 2016, the result could be even more severe capital spending reductions, potential production curtailments, and increased financial stress for mid-size and smaller firms. In today’s blog, we examine what has happened to producer hedging protection and the implications for capital spending and production trends.