US E&P 3Q24 Recap

With the completion of 3Q24 earnings seasons, it’s time to provide a recap on the US E&P results while also assessing the remainder of D&C and Capex spend for 2024. Among the 26 US E&Ps covered, the aggregated production total averages 15.3MMboepd, equating to 50% of total US daily production¹  …so with the direction of these 26 producers, so too goes the direction for all US production. With that in mind, here are my key takeaways from the quarterly presentations.

E&Ps expected to stay the course despite commodity price challenges. The majority of the E&Ps reaffirmed and even increased their 2024 guidance. 4Q24 guidance broadly supports steady production to year-end with sequential aggregated growth among the 26 E&Ps forecasted at 2%, though among natural gas producers 4Q24 production is anticipated to sequentially decline -2%. Looking ahead to 2025, I have updated my price outlook (see below) that includes a forecasted decline in WTI of -8% YoY amid a global slowdown in oil demand, largely driven by China’s economic recovery. I will expand on my thoughts and rationale for why oil prices are anticipated to decline in a separate note, but for the time being crude oil (and NGLs) are forecasted to decline in 2025. That said, I anticipate natural gas prices recovering above the $3/mcf threshold. LNG export capacity adds, coupled with power generation growth driven by a step-jump increase in data center construction and everything else under the “parabolic growth of AI” umbrella should translate to a steady gas price recovery.

• WTI: $71/barrel

• Henry Hub: $3.25/mcf

• Mt. Belvieu NGLs: $31.95/barrel

Capex forecasted to decline due to operational efficiencies, not OFS price declines. As noted in my 3Q24 table above, I have included the 1Q24 guidance from March 2024 to illustrate the comparison in full year guidance over the past 8 months. While production has remained effectively the same, capital spend has declined -5%. This Capex reduction is largely due to a combination of operational improvements - well design optimization, longer lateral lengths/wider spacing and faster cycle times. Given carbon steel product prices (OCTG, DSAW and API 5L seamless line pipe) have remained consistent through the second half of 2024, the aggregated reduction in capital spend is largely tied to efficiency gains led by the E&P operational teams. I expect this efficiency trend to continue through 2025, particularly if commodity prices weaken as forecasted. This in turn would equate to a reduction in aggregated wells drilled and completed, most notably as 3-mile laterals become more commonplace across all US onshore basins.

Capital Allocations keep tackling debt repayment and share buybacks. The consistent theme for shareholder return has been a combination of debt repayment and share repurchasing to appreciate share valuations. With E&Ps continuing to deliver shareholder value through allocation strategies targeting 50%+ of free cashflow (FCF) towards dividends, the remaining capital allocations either target debt at or below the 1.5x leverage ratio, and/or share repurchasing. While variable dividends were popular through 2022/23, the overwhelming trend in 2024 has been focused strictly on share buybacks. Expect this trend to continue though also consider temporary halts to share repurchasing/debt repayment due to acquisitions much like the guidance provided by Ovintiv (OVV) following their acquisition of Paramount Resources’ (POU) Montney AB assets (and the announced divestiture of OVV’s Uinta assets).

Companies Mentioned

• Paramount Resources Ltd. (POU)

• ConocoPhillips Canada Resources Corp. (COP)

• Ovintiv Canada Ulc (OVV)

• Murphy Oil Corp (MUR)

• Exxon Mobil Corporation (XOM)

• Chevron Corporation (CVX)

• Expand Energy (EXE)

• EOG Resources, Inc. (EOG)

• EQT Corporation (EQT)

• Occidental Petroleum Corporation (OXY)

• Coterra Energy Inc. (CTRA)

• Devon Energy Corporation (DVN)

• Antero Resources Corporation (AR)

• Diamondback Energy, Inc. (FANG)

• Marathon Oil Corporation (MRO)

• APA Corporation (APA)

• Range Resources Corporation (RRC)

• Comstock Resources, Inc. (CRK)

• Permian Resources Corporation (PR)

• Matador Resources Company (MTDR)

• Civitas Resources Inc. (CIVI)

• CNX Resources Corporation (CNX)

• Chord Energy Corporation (CHRD)

• Magnolia Oil & Gas Corporation (MGY)

• SM Energy Company (SM)

• Crescent Energy Company (CRGY)

• High Peak Energy Inc. (HPK)

_{Disclaimer: 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.}