US E&P firms engineered a spectacular recovery from the financial near-disaster caused 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) hit $114/bbl in May and gas prices natural exceeded the $9/MMBtu mark in August. But maintaining this level of profitability has been an uphill battle against commodity prices that have fallen significantly since 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 oil and gas producers’ first quarter 2023 results and provide an outlook for the second quarter.
The 42 oil and gas producers we monitor, all U.S. E&Ps with a market cap of more than $500 million, but not integrated energy companies like ExxonMobil and Chevron, posted back-to-back profitable years in 2021 and 2022. Such as we described in Camelot, pre-tax operating profit and cash flow from operations peaked in the second quarter of 2022. Earnings of $52.5 billion exceeded the total amount earned in all of 2014, when the prices of oil exceeded $100/bbl and cash flows exceeded $64 billion. However, as we reported in Download lullaby, oil and gas prices retreated from mid-2022 highs in the second half of last year and profits fell 10% in the third quarter and 29% in the fourth quarter as cash flows they fell by 8% and 21%, respectively. While we predicted an even “less idyllic” Q1 2023, oil prices showed signs of stabilization, moderating the impact on E&P earnings.
Oil prices fell just 6% to an average of $77.61/bbl in the first quarter of 2023, but natural gas prices fell off a cliff, falling 57% from 5.62 dollars/MMBtu to $2.55/MMBtu. As shown in Figure 1, the 42 companies in our study universe reported first-quarter 2023 pre-tax profits of $19.08 per barrel of oil equivalent ($/boe; 25 billion dollars; blue bar at far right) and generated $29.26/boe ($38.4 billion); orange bar on the far right) in cash flow for the first three months of this year, up 29% and 21%, respectively, from $26.70/boe and $37.11/boe that they recorded the previous quarter. Earnings were 54% below their Q2 2022 peak of $41.50/boe, while cash flow was 43% below their Q2 2022 peak of $51.04/boe drink Unit revenue was $41.23/boe (right end of the gray line in Figure 1), $8.18/boe (or 17%) lower than the $49.41/boe realized in the fourth quarter of 2022 and $22.80/boe (or 36%) below peak. of $64.03/boe in the second quarter of 2022.
