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.
Posts from Nick Cacchione
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.
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.
Is the glass half-full or half-empty? The answer to that age-old question usually indicates whether a particular situation is a cause for optimism or pessimism. That question is particularly appropriate when trying to place in perspective the cyclical movement of the earnings and cash flows of U.S. exploration and production (E&P) companies, including returns that have steadily declined with commodity prices over the last year. In today’s RBN blog, we analyze Q2 2023 E&P earnings and cash flows and provide some perspective on the past and future profitability of U.S. oil and gas producers.
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.
