2Q24 Preview & Selected Estimates

A short note today before US and Canadian E&Ps begin releasing their 2Q24 quarterly earnings results over the next few weeks. Through June and July, I have been busy building out the financial modeling of select US-based E&Ps to compliment the production and capital spend forecasts that I have researched through the better part of this year. My intent is to further illustrate the operational efficiencies (and inefficiencies) of producers as well as highlighting the distinguishing characteristics that differentiate the resource basins.

My initial quarterly preview summarizes my financial and operational estimates for 2Q24 among nine US-based E&Ps, while also providing forecasts for full-year 2024 and 2025. For my Canadian readers, apologies for the lack of Canadian coverage; my plan over the coming months is to build out a similar sample of Canadian producers to compare and contrast to their US counterparts.

Lastly, I have provided valuation estimates as part of this summary. Please note and these estimates are strictly for general information purposes and should not be interpreted as financial advice. I’m pretty slick with Excel, and I have an excellent understanding of the oil and gas sector, but by no means am I a financial advisor. For further disclosure, please see the disclaimer at the bottom.

With that out of the way, here are my thoughts leading into 2Q24 earnings:

• D&C efficiencies leading to improved operational costs. My expectation is to see material, YoY cycle time efficiencies to be a common trend, particularly among Permian producers. A year ago, my estimates suggested wells taking ~31 days to drill and complete, whereas current cycle times are ranging between 14-18 days. Consequently, expect to see a material YoY decrease in operational metrics on a per boe basis.

• The flurry of M&A activity has likely subsided though expect to see bolt-on acquisitions. Amid the steady rise in petroleum prices, coupled with E&P activities to reduce debt and cash flow allocation towards share buybacks, the industry was prime for opportune M&A activity as we’ve seen over the past six months. Commodity price outlooks suggest a steady continuation of existing pricing, which in turn leaves the proverbial door open for continued M&A activity. While certain producers with limited inventory could still entertain large-scale acquisitions as I’ve previously discussed (link), it appears that bolt-on acquisitions such as Permian Resources’ (PR) recently announced acquisition of ~15,000 boepd in the Delaware basin for USD $817MM (link) are the likely result of larger producers re-evaluating their core assets going forward.

• Capital allocation will continue to benefit investors through share buybacks and dividend growth. Despite sub-$2/mcf gas prices, sustained oil/liquids commodity pricing keeps the free cash flow churning. In turn, capital allocation strategies are likely to continue benefitting the shareholder through dividend growth and share buybacks.

If you have any questions or comments regarding my research feel free to contact me via email at [email protected].

Companies Mentioned

• Coterra Energy Inc. (CTRA)

• Devon Energy Corporation (DVN)

• Ovintiv Inc. (OVV)

• Diamondback Energy, Inc. (FANG)

• Permian Resources Corporation (PR)

• Matador Resources Company (MTDR)

• Civitas Resources Inc. (CIVI)

• CNX Resources Corporation (CNX)

• High Peak Energy Inc. (HPK)

_{Disclaimer: The information provided on this post/article is for general informational purposes only and should not be construed as financial advice. I am not a licensed financial advisor, and the content presented here is not intended to substitute for professional financial advice, analysis, or services. Any financial decisions you make are at your own risk, and you should consult with a qualified financial advisor before making any investment or financial decisions. The views expressed here are my own and do not reflect the opinions or positions of any entities I am affiliated with. All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Patrick Enwright accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Patrick Enwright makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.}