The saying goes, “If you’ve 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 oil and gas executives to be in the business of selling everything from gold chains to $400,000 Maserati GranCabrios to half-a-billion dollar mega-yachts, they’re not shy about time to show the financial gains of their companies last year due to the increase in goods. prices in the form of lavish shareholder returns that, in some cases, dwarf returns from traditional dividend giants. In today’s RBN blog, we’ll detail 2022’s extraordinary returns for oil and gas investors and discuss the warning signs that 2023 will be a down year.
The saga of US E&P may not be a classic rags-to-riches story, but there’s no doubt that the industry endured seven brutal years from the 2014-15 crude price crash to the collapse in demand and basic products induced by the pandemic. prices in 2020. Investors rallied as the S&P E&P stock index plunged 88% from a peak of more than 12,600 in mid-2014 to just 1,500 by the end of 2020. As cash flows from rising commodity prices began to refill their coffers in 2021, E&Ps initially made the fiscally responsible decisions to gradually restore capital investment to at least maintain the production and reserves while paying off excessive debt. But his main goal was to win back his “fans” (investors) by substantially increasing shareholder returns.
As the blue bars and left axis in Figure 1 below show, over the past nine years, the 41 oil and gas E&Ps we track have dramatically reduced their reinvestment rate in a major shift from their historic strategy of “growth at any price”. During 2014 and 2015, our group of companies invested more than 100% of cash flow, supplementing cash shortfalls with debt and common stock issuances. Then, over the period 2016-19, and in line with the decline in oil and gas prices (the orange line and right axis in Figure 1 show the annual average price of WTI), companies reduced capex around 70%-90% cash. flow as they struggled with bloated balance sheets paying down debt. Increased financial discipline helped producers survive the sharp drop in commodity prices in 2020. The strong and unexpected rise in completions in 2021 more than doubled the collective cash flow of E&P operations to $89 billion, up from $41 billion in 2020.
