The term “exploration and production company” has been widely used for only four or five decades, but the activities it represents have a history that dates back to the first oil well drilled by Edwin Drake in Titusville, PA, in 1859. Ever since that world-changing event, discovering and developing new sources of oil and gas has remained the industry’s passion, exemplified by wildcatters and, more recently, by the technological wizards of the Shale Revolution. To this day, every major public upstream company still invests in finding and developing reserves — except one. In today’s RBN blog, we examine the unique approach taken by Diversified Energy Co., which has grown substantially by ignoring the “E” part of E&P.
Natural Gas Production
Monday, 5/13/2024
For the past decade, producers in the Permian Basin have been the driving force in domestic production growth, but lately there has been a hard-to-miss slowdown in incremental production rates for crude, gas and natural gas liquids (NGLs). While Permian producers are primarily motivated by crude oil economics, those volumes also come with a lot of associated natural gas and NGLs. These commodities are therefore fundamentally interlinked. So if there’s a hangup with one, the effects will be felt across the upstream and then cascade downstream. There is a lot of money riding on these markets and the impacts of an extended slowdown in the Permian could be monumental, not just in the energy industry but also in the broader U.S. and global economies. In today’s RBN blog, we will examine what’s to blame for plateauing production in the U.S.’s most prolific basin and gauge what its big-picture implications might be.
Tuesday, 4/09/2024
Growth for growth’s sake. In the early years of the Shale Revolution, that’s what it was all about. Backed by billions of dollars in Wall Street borrowings, E&Ps plowed vast piles of cash into increasing production. It was the era of “Drill baby drill!” And we all know what happened next. Rabid production growth contributed to oversupply and crude oil prices crashed. But resilient E&Ps clawed their way back by adopting what we now know as capital discipline, initially in fits and starts. Then, after the COVID price meltdown, they went all-in, elevating free cash flow generation to Job #1 and returning a significant portion of cash flow to shareholders. It worked! Financial markets started to think of E&Ps more as yield vehicles than growth plays. But it is in the DNA of oil and gas producers to grow. And now that U.S. crude prices are above $85/bbl, could we see a backslide toward organic growth — a 2024 rendition of “Drill baby drill”? In today’s RBN blog, we’ll explore the historical context of E&Ps’ transition to capital discipline and what it tells us about what’s coming next.
Good Enough - Most E&P 2023 Profits Dip To Solid Levels After Record 2022 But Gas Producers Struggle
Thursday, 4/04/2024
U.S. E&Ps have just concluded discussions of their Q4 and full-year 2023 results and, as usual, the view of analysts and investors can be summed up by one question: What have you done for me lately? But while the collective results of the 44 producers we track were off from the previous quarter and a record 2022, there’s a lot to be said for how well they held up through a period of unusually low natural gas prices. In fact, if you take a step or two back for a longer-term perspective you’d see a strong historical performance that suggests E&Ps really have learned how to do well through commodity price ups and downs. In today’s RBN blog, we analyze the 2023 results of a representative group of major U.S. producers and look ahead to how 2024 may shake out.
Monday, 3/04/2024
Faced with sustained sub-$2/MMBtu natural gas prices and dim prospects for significant gas-demand growth until sometime next year, a number of major gas-focused E&Ps have been tapping the brakes on production and trimming their planned 2024 capex. But one company — Chesapeake Energy, slated to become the U.S.’s largest gas producer thanks to a recently announced acquisition — has taken a more dramatic step, implementing a novel strategy that will slash production by 25% but leave the E&P ready to quickly ramp up its output as soon as demand and prices warrant. In today’s RBN blog, we’ll review the 2024 guidance of the major U.S. gas producers and delve into the analysis of Chesapeake’s unusual approach.
Monday, 2/19/2024
Big changes are coming to the new epicenter of the global LNG market: Texas and Louisiana. On top of the existing 12.5 Bcf/d of LNG export capacity in the two states, another 11+ Bcf/d of additional capacity is planned by 2028. The good news is that the two major supply basins that will feed this LNG demand — the Permian and the Haynesville — will be growing, but unfortunately not quite as fast as LNG exports beyond 2024. And there’s another complication, namely that the two basins are hundreds of miles from the coastal LNG terminals, meaning that we’ll need to see lots of incremental pipeline capacity developed to move gas to the water.
Friday, 1/26/2024
Big changes are coming to the new epicenter of the global LNG market: Texas and Louisiana. On top of the existing 12.5 Bcf/d of LNG export capacity in the two states, another 11+ Bcf/d of additional capacity is planned by 2028. The good news is that the two major supply basins that will feed this LNG demand — the Permian and the Haynesville — will be growing, but unfortunately not quite as fast as LNG exports beyond 2024. And there’s another complication, namely that the two basins are hundreds of miles from the coastal LNG terminals, meaning that we’ll need to see lots of incremental pipeline capacity developed to move gas to the water.
Friday, 11/24/2023
The cacophony of Black Friday promotions may make us all wonder if the “giving thanks” part of the fourth Thursday of November has been subsumed by rampant consumerism. But we suspect that E&P executives sat down to more traditional celebrations of gratitude as the upstream part of the oil and gas industry rebounded nicely in Q3 from five consecutive periods of declining profits and cash flows. In today’s RBN blog, we analyze Q3 2023 E&P earnings and cash flows and provide some perspective on the past and future profitability of U.S. oil and gas producers.
Thursday, 7/13/2023
Even an “Act of Congress” may not be enough to keep the Mountain Valley Pipeline out of trouble. The long-stalled natural gas takeaway project in Appalachia briefly appeared to be unfettered from regulatory and legal shackles after Congress rolled an MVP mandate into the debt-ceiling bill — the Fiscal Responsibility Act (FRA) of 2023. With the MVP provision, Congress effectively approved all required permits for the greenfield project without judicial review in a bid to fast-track the completion and initial startup of the pipeline. The FRA, which President Biden signed into law on June 3, appeared to instantly clear MVP’s path. But that reprieve didn’t last long. Earlier this week, the U.S. Fourth Circuit Court of Appeals once again halted construction of the project, seemingly in defiance of the FRA, setting the stage for a fight at the Supreme Court. In today’s RBN blog, we break down the latest developments and how they impact MVP’s prospects.
Friday, 6/23/2023
Western Canada’s natural gas production has been on a roll in the past couple of years, reaching a record 17.3 Bcf/d in 2022. Another year of strong growth was expected in 2023, but Mother Nature had other plans — as usual. First, a milder-than-average heating season left plenty of gas in storage, pushing natural gas prices lower across North America. Second, tinder-dry conditions in some of the best gas production areas in Alberta and British Columbia sparked what so far has been a very active wildfire season — and forced producers to curtail their gas output numerous times in May and June. From our early expectations for production growth of 1.2 to 1.4 Bcf/d this year, the impacts from wildfires and a healthy dose of pipeline maintenance has chopped our 2023 production growth outlook to just 0.4 Bcf/d. As we discuss in today’s RBN blog, this slowdown in growth is exactly the opposite of what’s needed to avoid a runup in prices. Strong production momentum will be required into 2024 and 2025 to deal with the startup of the LNG Canada export facility, ongoing Canadian gas demand growth and pipeline exports to the U.S.
Tuesday, 5/02/2023
U.S. propane stocks are high, 33% over the 5-year average. Year-to-date propane exports are at a robust 1.6 MMb/d, well above the 1.4 MMb/d shipped out in 2022. Increasing propane production must be driving the growth in inventories and exports, right? Nay! Propane production is actually down, falling 9% from September 2022 to December, and even with meager growth this year is still 3% below the September high. So where are the propane export and inventory barrels coming from? And what does this mystery reveal about the trajectory of propane production over the next year or two? In today’s RBN blog, we do some sleuthing and come up with some answers.
Thursday, 3/23/2023
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.
Thursday, 1/05/2023
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.
Wednesday, 12/07/2022
Storm clouds may be gathering on the economic horizon as concerns about persistent inflation and looming recession roil markets and politics. But for oil and gas producers, the third quarter was the equivalent of a driver putting the top down under a flawless azure sky, dialing up the road tunes, and cruising without a care down an endless highway. Lower oil prices led to a dip in earnings and cash flow after a record-breaking second quarter, but cash still filled producers’ coffers at the second-highest rate in decades. In today’s RBN blog, we review the Q3 results of U.S. E&Ps and discuss what may lie ahead as those storm clouds move closer.
Thursday, 10/06/2022
The U.S. Department of Energy has laid out a clear set of criteria for the six to 10 clean hydrogen hubs it will select next year to receive up to $8 billion in federal support. For example, DOE wants at least one hub to use renewable energy to make hydrogen, another to use nuclear power, and another to use fossil fuels with carbon capture and sequestration (CCS). It also wants diversity among hydrogen end-users — geographic diversity too (at least two hubs must be in areas with the greatest natural gas resources) — and the department says it will give extra weight to proposals likely to create the most opportunities for skilled training and long-term employment. Yet another factor that’s sure to boost the prospects for hydrogen hub proposals in the heart of the Marcellus/Utica Shale is the looming presence of West Virginia Senator Joe Manchin, the Energy & Natural Resources Committee chairman who helped make hydrogen hub funding — and the rest of last year’s $1-trillion-plus infrastructure bill (and this year’s Inflation Reduction Act) — a reality. In today’s RBN blog, we discuss the hydrogen hub proposals now under development in northern West Virginia, western Pennsylvania and eastern Ohio.