Improved commodity prices propel US oil and gas revenues to four-year high

EY releases results of 11th annual US oil and gas reserves study

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Jul 13, 2018, 08:00 ET

HOUSTON, July 13, 2018 /PRNewswire/ -- The 50 largest US exploration and production (E&P) companies increased capital expenditures for the first time since 2014, according to the US Oil and Gas Reserves Study 2018. Companies also reported the highest oil reserves during the five-year study period (2013–2017), while US oil production posted an average 4% annual growth, even accounting for a modest decline in output in 2016.

The survey, which analyzes US E&P results based on 2017 end-of-year US oil and gas reserve estimates, found that study companies reported capital expenditures of US$114.5 billion — 32% higher than 2016 and 5% higher than 2015. Similarly, study companies' revenues amounted to US$135.9 billion — up 32% from 2016 and the highest since 2014 as a result of improved commodity prices.

"Sustained high oil prices were initially required to unleash the surge in supply of unconventional oil seen in the US, but the shale patch has been the most resilient in response to downward price pressures beginning in mid-2014 — culminating in an uptick in oil production growth," said Herb Listen, Americas Oil & Gas Assurance Leader for Ernst & Young LLP. "Companies continue to optimize portfolios and cost structures in order to respond to the cyclical nature of commodity prices, and as commodity prices improved in 2017, we have seen an increase in revenues and results of operations among US oil and gas companies."

Capital expenditures

The rise in capital expenditures among study companies was particularly evident in exploration and development, which saw increases of 30% and 49%, respectively, in 2017. Drilling activity moved in a similar trajectory, with companies drilling 30% more net development wells and the number of net exploration wells increasing 23% in 2017 compared with 2016.

The study also highlights a rebound in exploration spending in 2017, which surged to US$13.8 billion compared with US$10.6 billion in 2016. Independents saw the largest percentage increase at 62%, while the large independents' exploration spending increased 19%. Similarly, independents led the increase in development drilling with an 87% uptick on 2016, followed by large independents and integrateds, which recorded 57% and 12% increases, respectively.

"We anticipate that existing drilling but uncompleted (DUC) wells inventory will contribute significantly to completions and new production in the coming months, as well as insulate short-term production from cost pressure as activity ramps up further," said Listen. "According to our US Oil and Gas Reserves Study 2018, DUC inventory reached a record high of 7,692 wells in March 2018, assuring steady growth with the improvement in price outlook and drilling activity."

Revenues, results and reserves

Study companies reported combined after-tax earnings for the first time since 2014. Net income for 2017 was US$16.1 billion, compared with a net loss of US$33.8 billion in 2016 — primarily resulting from improved revenue and lower DD&A and impairment charges. While combined oil and gas production remained largely stable year-on-year, average realized revenue per BOE increased by 33% in 2017, resulting in a 32% increase in total revenues. In contrast, oil and gas property impairments totaled US$10.2 billion, down 47% from 2016 and 91% from 2015 — due in part to general stabilization of the commodity price outlook.

Meanwhile, oil reserves for study companies increased 21% in 2017 due to a significant 76% rise in extensions and discoveries in 2017. At 5.0 billion barrels, this was the highest of the study period following the lowest level reported last year. End-of-year gas reserves increased 19% in 2017 to 176 trillion cubic feet (tcf), marking the highest level of gas reserves since 2014 due to extensions and discoveries net upward revisions at 9.9 tcf – partially offset by sales of proved gas reserves and production.

"Acute pressure was felt in the US upstream in 2015–2016 as companies struggled with increasing debt burdens and sustained lower revenue," Listen said. "In 2017, reserve additions increased dramatically with an improved price environment. Although spending rose, capital expenditure levels far below the 2014 spending peak were sufficient to maintain production at near-record levels, sustaining the surge with dramatic improvements in efficiency."

Notes to Editors

About the study

The US Oil and Gas Reserves Study is a compilation and analysis of certain oil and gas reserve disclosure information as reported by publicly traded companies in their annual reports filed with the United States Securities and Exchange Commission (SEC). This report presents the US E&P results for the five-year period from 2013 through 2017 for the largest 50 companies based on 2017 end-of-year US oil and gas reserve estimates based on available information. For more information, visit: ey.com/oilandgas/USReserves.

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

This news release has been issued by Ernst & Young LLP, a member firm of EY serving clients in the US.

About EY's Global Oil & Gas Sector

The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY's Global Oil & Gas Sector supports a global network of more than 10,000 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oil field subsectors. The Sector team works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant sector issues. With our deep sector focus, we can help your organization drive down costs and compete more effectively.

For more information, please visit ey.com/oilandgas.

APPENDIX

Top 50 US exploration and production companies: capital expenditure 2013-17

[see Capital expenditures chart]

CONTACT:
Morgan Cozatchy
Prosek Partners
(646) 363-6805
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SOURCE EY