USA Oil and Gas Producers Recover and Reset

USA Oil and Gas Producers Recover and Reset
According to EY, U.S. oil and gas producers recovered and reset in 2021.

According to the EY U.S. oil and gas reserves, production and ESG benchmarking study, U.S. oil and gas producers recovered and reset in 2021, posting increased profits of $73.7 billion and $211.9 billion in revenues, with significant deal activity that drove $144.1 billion in capital expenditures.

Higher commodity prices and increased pressure from investors for returns led independents to increase their share repurchases and dividend payments by 122 percent from $8.1 billion in 2020 to $18.1 billion in 2021, EY highlighted. This trend in capital allocation was reinforced when reviewing development and exploration costs, according to EY, which outlined that these costs, as a percentage of netback, decreased from 64 percent in 2020 to 32 percent in 2021.

The integrated oil and gas companies in the study were said to have acted similarly, while also demonstrating a focus on decarbonization via their asset strategy, shifting assets to the larger independents.

Oil and gas production remained materially flat year over year, growing to its highest level in the study period to three billion barrels and 13.9 trillion cubic feet (tcf) in 2021, EY revealed. The companies in the study reported combined oil reserves of 31.8 billion barrels and combined gas reserves of 188.6 tcf, a 21 percent and 27 percent increase, respectively, compared with 2020, EY outlined. The increases were primarily driven by purchases of 3.5 billion barrels and the 4.6 billion barrels of extensions and discoveries in oil reserves, as well as 24.2 tcf of extensions in discoveries in natural gas reserves, EY noted.

The study also found that ESG matters remain high on the minds of management teams of the companies studied. Increasing six percentage points from 2020, 82 percent of all companies in the study published a sustainability or ESG report. EY also found that 43 of the companies reported at least one scope of greenhouse gas emissions, with 33 percent of those companies reporting at least one category of Scope 3 emissions in addition to their Scopes 1 and 2 emissions.

“The resilience of the oil and gas sector is being tested - from economic and geopolitical uncertainty to access to capital and climate change,” Herb Listen, EY Americas’ Energy and Resources Assurance Leader, said in a company statement.

“However, our historical studies show that E&P companies have learned significant lessons about operational excellence and capital discipline that will serve them well now and in the future,” he added in the statement.

“The price improvement during 2021 enabled E&P companies to turn the corner toward significant cash flow, but the majority of companies tempered drilling activity, choosing instead to focus their capital allocation strategy on returning capital to investors and optimizing portfolios,” Herb went on to say.

David Johnston, EY US-West Region Strategy and Transactions Energy Leader, said, “the energy transition and focus on managing emissions have caused oil and gas companies to rethink their portfolios”.

“Working to rebalance their portfolio toward lower-carbon businesses, the integrated companies were big sellers, while smaller independents sold assets due to pressures from capital providers. The buyers have been the large independents looking for value and doubling down on the reality that oil and gas will be needed for decades to come,” Johnston added.

Pat Jelinek, EY Americas Oil and Gas Leader, said, “more oil and gas companies will begin to embrace ESG and sustainability as a catalyst to innovation throughout their strategy and in operations, rather than view it merely as a compliance exercise”.

“While the approach companies take will look different, the intersection of digital technology and sustainability provides a tangible path to drive strategy and support ongoing resilience,” Jelinek added.

Looking ahead to 2022, EY’s study outlined that it can be expected that U.S. oil industry activity will be driven by events on the ground in Ukraine, the response of governments around the world, particularly those in Europe, the market reaction to changes in oil and gas trade flows, and the ability and willingness of companies and their capital providers to fund exploration and development geared toward replacing Russian oil.

EY highlights that its U.S. oil and gas reserves, production and ESG benchmarking study is a compilation and analysis of U.S. oil and gas reserve and production information reported by publicly traded companies to the Securities and Exchange Commission and an analysis of certain publicly reported ESG disclosures, as applicable. It presents results for the five-year period from 2017 to 2021 for the 50 largest companies based on 2021 end-of-year U.S. oil and gas reserve estimates, EY notes.

Eight percent of the companies studied were defined as integrateds, 36 percent were defined as large independents, and 56 percent were defined as independents.

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