Cut to it: US E&P 2023 capex rises after aggressive late-22 investment burst

Marking the third anniversary of the onset of COVID, the Washington Post detailed a study that showed most of us are already shedding virus-stricken memories of that tedious and often traumatic time to focus on looking ahead , a trait scientists label as “future-oriented positivity.” bias.” This transition was starkly evident in the 2022 investment decisions of U.S. operating and production companies, as capex budgets for the 42 companies we monitor, cut to the bone during the pandemic , expanded over the past year from initial guidance of a 24% increase over 2021 to a final 54% increase reported for the full year. They increased production by 9% year-over-year , but producers haven’t forgotten fiscal discipline or a focus on generating cash flows.In today’s RBN blog, we look at 2023 capital budgets that generally keep pace with Q4 spending 2022 and avoid further increases in an environment of lower commodity prices.

The plunge in commodity prices at the start of the pandemic in March 2020 sent shock waves through the oil and gas industry, and the 42 producers in our universe (which includes all US E&P capitalization market cap of over $500 million) cut investment by 50.% in 2020 to $37 billion from $74 billion in 2019, as shown by the stacked bars (and left axis) in the figure 1. Despite a substantial recovery in realizations, investment increased only 6% to $39.7 billion in 2021. Estimated oilfield service inflation of 10% to 20% and the need to rebuild the inventory of wells drilled but not completed (DUC) after a sharp pandemic reduction drove a 24% increase in initial 2022 investment guidance to $49.3 billion. However, sustained high commodity prices led to increased cash flows, allowing producers to dramatically increase shareholder returns and increase drilling to more than offset steep decline rates of shale in the short term. As we pointed out in It is growing, our Q3 2022 investment blog, capital budgets rose between 3% and 4% in each of the first three quarterly reporting periods to $54.9 billion, a 38% increase from the previous year. Full-year results revealed a dramatic and unprecedented investment growth of 12% in the fourth quarter compared to the fourth quarter of 2021, increasing total spending by 54% to $61.6 billion, year-over-year growth biggest in more than a decade.