Nick Cacchione

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.

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.

Unlike most of us, CEOs and other senior executives at U.S. oil and gas companies derive the lion’s share of their compensation not from salaries, but from bonus and incentive programs tied to performance targets set by their boards of directors. So it’s no surprise that the dramatic strategic shift implemented by U.S. E&Ps and integrated energy companies over the last decade has been steered by an equally dramatic change in their compensation incentives. In today’s RBN blog, we review how top executives at oil and gas companies are compensated and analyze the shift in the incentives they are motivated to meet.

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.

The saying goes, “If you got it, flaunt it,” and the rise of social media has certainly accelerated the ostentatious display of sudden wealth by rock stars, rappers, tech billionaires, star athletes and others. While it might be unseemly for executives at oil and gas companies to indulge in bling from gold chains to $400,000 Maserati GranCabrios to half-billion-dollar mega-yachts, they weren’t shy about displaying their companies’ financial gains last year from surging commodity prices in the form of lavish shareholder returns that in some cases dwarf returns from the traditional dividend giants. In today’s RBN blog, we’ll detail the extraordinary 2022 returns allocated to oil and gas investors and discuss the warning signs that 2023 will be a leaner year.

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.

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.