After languishing since midsummer, the share prices of U.S. oil and gas producers surged after Election Day on a wave of optimism that the sector would flourish under the new administration. However, stocks quickly gave up most of the gains on lackluster Q3 2024 results and a great deal of uncertainty about how — or even if — President-elect Trump’s oft-quoted goal to “drill baby drill” to lower energy costs would impact the strategies and results of the publicly traded E&Ps, especially the 15 major Oil-Weighted producers we cover. In today’s RBN blog, we delve deeper into the impact of the Q3 results of the oil producers on shareholder returns, cash allocation, leverage and capital investment, including the first announcements of 2025 budgets.
Posts from Nick Cacchione
Boosting America’s hydrocarbon output was a major plank in the 2024 Republican platform, and Donald Trump’s recent victory has stimulated a lot of optimism about the U.S. upstream sector. The nomination of Liberty Energy CEO Chris Wright as Energy Secretary confirmed that “drill, baby, drill” will be a mantra in the new administration. However, over the past few years, U.S. producers have dramatically shifted their focus from growth at any cost to strict financial discipline focused on maximizing free cash flows and shareholder returns. In today’s RBN blog, we analyze the Q3 2024 results of the major U.S. E&Ps we follow and look for early clues about how their senior executives might react to the renewed federal enthusiasm to rapidly accelerate drilling.
The upcoming presidential election has filled the airways with discussions around crucial issues, some with dramatic short-term (yet highly variable) impacts and others that will play out over several years. The impact of the critical short-term issue facing oil and gas producers today — historically low natural gas prices — varies depending on the structure of individual company portfolios. In today’s RBN blog, the last of our four-part series, we analyze the effect of lower gas prices on the revenues, cash flows, investment, leverage and cash allocation of Oil-Weighted E&Ps and discuss how they are adapting.
One of the most compelling Greek myths is the story of Sisyphus, a man condemned by the gods to eternally push a giant boulder to the top of a mountain, only to have it crash back down to the valley just short of his goal. His plight is not a bad metaphor for the long-term historical trend of U.S. E&Ps, which neared pinnacles of financial stability in 1999, 2008, 2014 and 2020 — just before price drops sent returns plunging. Producers seem to have ducked out from under the curse recently, recording record post-pandemic profits in 2021 and 2022, then settling into an extended period of stable, elevated returns. However, deteriorating gas realizations have at least paused the boulder’s climb for all E&Ps and sent it rolling back for gas-weighted producers. In today’s RBN blog, we analyze the overall positive returns for Oil-Weighted and Diversified producers and the more dramatic impact of low pricing on the Gas-Weighted E&Ps.
After thoroughly alienating their investor base over more than two decades of boom-and-bust cycles, U.S. E&Ps won investors back in the early 2020s by radically transforming themselves from high-risk to high-yield vehicles. Fueled by surging crude oil and natural gas prices in 2022, producers generated massive free cash flows — and spectacular shareholder returns that topped 10% during the late-2022 peak. Prices and cash flows subsequently retreated, however, and skeptics worried about the sustainability of producers’ high-return strategy. Would debt repayment, dividends and share buybacks sink? In today’s RBN blog, we‘ll review the Q1 2024 cash allocation of the major U.S. E&Ps with a spotlight on current dividend yields.
A macro view of U.S. exploration and production (E&P) company performance over the last quarter century reveals repetitive boom-and-bust cycles driven by periodic extremes in crude oil pricing, including price crashes in 2008, 2014 and 2020. That history contrasts with the remarkable stability in West Texas Intermediate (WTI) realizations since mid-2021 as the industry got its footing post-pandemic. Assisted by a new commitment to financial discipline, producers have generated relatively stable, historically solid overall quarterly earnings and cash flows. But the devil’s in the details, and in today’s RBN blog we delve into peer group and individual company performance as well as overall industry trends for Q1 2024.
The transition of U.S. E&Ps to capital discipline has led to historic shareholder returns and won back legions of investors who had virtually abandoned the industry until a few years ago. But while it might be tempting to conclude producers must finally have their financial houses in good order, a lot of us have witnessed a few boom-and-bust cycles in our time and remain hypervigilant for any signs of financial instability, especially considering that commodity prices could weaken at any time. In today’s RBN blog, we analyze the impact of lower price realizations and capital allocation decisions on the balance sheets of the major U.S. independent oil and gas producers.
As we’ve frequently chronicled, 2022 was a golden year for U.S. exploration and production (E&P) companies and their investors, as soaring commodity prices triggered record cash generation to fund the highest levels of shareholder returns of any American industry. But Camelot didn’t last forever, and the twin impacts of lower hydrocarbon prices and rising inflation inevitably eroded cash flows in 2023. The good news is that these fiscally disciplined producers still recorded the second-best results of the last decade to fund historically strong shareholder returns. In today’s RBN blog, we detail the 2023 cash allocation of the 41 major U.S. E&Ps that we cover.
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.
The end of one year and the start of another provides a perfect opportunity to take stock — in this case, to examine total shareholder returns for the institutional and individual investors holding stock in oil and gas producers. As it turns out, 2023 was a mixed bag, with gas-focused E&Ps generally benefiting from a rebound in gas prices (current and future), oil-focused companies taking a hit, and diversified producers ending up somewhere in between. In today’s RBN blog, we continue our review of E&Ps’ total shareholder returns (TSR) with a look at Gas-Weighted and Diversified E&Ps.
According to the World Wildlife Fund, the Javan rhino and the Amur leopard top the global list of most endangered species. Broadening the scope, in 2014-20 we probably would have added the E&P investor to the list, as shareholder returns plunged deep into negative territory for seven consecutive years on volatile commodity prices and massive industry overspending. Almost miraculously, a combination of higher prices and a strategic shift to distribute cash flow to equity holders resulted in record shareholder returns that brought investors back into the fold. However, weakening prices and significant increases in investment have dramatically shrunk returns this year. As we discuss in today’s RBN blog, total shareholder returns in 2023 were mixed: good for gas-focused E&Ps but less so for diversified and oil-focused producers.
Despite dreams of a white Christmas and a “soft landing” for the U.S. economy, there’s a lot going on in the world — much of it upsetting and even gut-wrenching. As for energy, crude oil prices have been sagging after a brief rise and natural gas prices, while up from their lows, remain less than stellar — and it seems things could get far worse in the blink of an eye. All of that has combined to make folks cautious and wary, and that’s impacting how oil and gas producers spend — or hoard — their money. In today’s RBN blog, we analyze U.S. E&Ps’ increasingly conservative cash allocation despite rising returns in Q3 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.
Much like their upstream counterparts, midstream companies have shifted to fiscal conservatism over the past few years, focusing less on growth and capital investment and more on shareholder returns, acquisitions and debt reduction. But there are significant differences between the strategies of midstream companies set up as traditional corporations, or C-corps, and those established as master limited partnerships, or MLPs. In today’s RBN blog, we continue our short series on midstream company cash flow allocation with an analysis of their reinvestment rates vs. their shareholder payouts.
Over the past four years, we’ve documented the strategic transformation of upstream oil and gas producers from growth at all costs to the fiscally conservative concentration on accumulating free cash flow to accelerate shareholder returns. Much like their upstream counterparts, midstream corporations and master limited partnerships (MLPs) have shifted to fiscal conservatism, focusing less on growth and capital investment and more on shareholder returns, acquisitions and debt reduction. In today’s RBN blog, we examine the cash flow allocation of a representative baker’s dozen of midstream companies as they compete for investor support.
