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Capital expenditure by U.S. oil companies remains low despite higher crude oil prices

Financial results for 47 U.S. exploration and production (E&P) companies show limited growth in capital expenditure during the third quarter of 2021 (3Q21), despite more cash from operations. Oil prices have been generally increasing since 3Q20, reaching seven-year highs in November 2021. Although cash from operations has more than doubled over the past four quarters for these companies, capital expenditure increased by comparatively less (54%) and remained significantly lower than the 2015–19 average. With higher cash flow, publicly traded E&P companies were repurchasing more of their shares of stock, increasing dividends, paying down debt, and increasing their cash balances. Our analysis of public statements from these companies suggests capital expenditure this year will be effectively the same as in 2020.

We base this analysis on the published financial reports of 47 publicly traded U.S. oil companies. As a result, the observations do not necessarily represent the sector as a whole because the analysis does not include private companies that do not publish financial reports. In 3Q21, these 47 publicly traded companies collectively produced 5.3 million barrels per day (b/d) of crude oil and natural gas liquids (NGL) in the United States, or about 32% of all U.S. crude oil and NGL production for the quarter.

The West Texas Intermediate (WTI) crude oil price averaged $70.61 per barrel (b) in 3Q21, an increase of $29.72/b (73%) compared with 3Q20. Higher prices contributed to a year-over-year gain of 130%, or $12.8 billion, in cash from operations. Cash from operations reached $22.7 billion in 3Q21, the most generated by these companies in any quarter since 3Q18. Their liquids production was flat year-over-year at 6.0 million b/d in 3Q21 and declined by 4% from the previous quarter. Compared with pre-pandemic levels, production in 3Q21 was 1.2 million b/d (16%) less than in 1Q20. Over the last four quarters, their capital expenditure increased by 54% to reach $9.3 billion in 3Q21 (Figure 1).

Figure 1. Cash flow statement items for 47 U.S. oil companies


Capital expenditure by these companies began declining at the beginning of 2019 and decreased year-over-year by $3.9 billion (20%) in 1Q20. The significant decline of crude oil prices in 2020 associated with the COVID-19 pandemic accelerated the decline in capital expenditure, which fell to $6.1 billion in 3Q20 and led to cash from operations falling to $3.8 billion in 2Q20, the lowest level for either since at least 2012. Although cash from operations increased by $18.9 billion through 3Q21 compared with its 2020 low, capital expenditure increased by only $3.3 billion. Historically, the ratio of capital expenditure to cash flow has been greater than 100%, reflecting the capital intensive nature of exploration and production as well as the need for outside sources of capital to fund drilling projects. With more growth in cash from operations than in capital expenditure, however, this ratio fell to 41% in 3Q21, the lowest ratio on record since 1995 (Figure 2).

Figure 2. Ratio of capital expenditure to cash flow for 47 U.S. oil companies


In 2020, significant economic disruptions contributed to the most U.S. corporate bankruptcies since 2010, including 69 in the energy sector. In this context, E&P companies focused less on long-term investments in capital expenditure and more on paying down debt, repurchasing shares, and increasing dividends to improve their short-term financial positions and improve shareholder returns. In the first three quarters of 2021, these 47 companies paid off $15 billion in debt, repurchased $1.9 billion in shares, and paid out $6.9 billion in dividends, coming close to matching the $25.3 billion spent on capital expenditure (Figure 3). In 3Q21 alone, these companies reduced debt by $7.9 billion dollars, more than any other quarter in over 10 years, and brought their long-term debt to the lowest level since 2012. Dividends for the first three quarters reached their highest level since 2015, and companies distributed 26% more cash to shareholders than their five-year (2016–2020) average. In addition, these companies increased their cash balances by $11.2 billion, increasing their cash reserves above their five-year average. Increased cash reserves can stabilize business operations in volatile price environments, but they also can serve to prepare for acquisitions or other uses of cash.

Figure 3. Sources and uses of cash for 47 U.S. oil companies


Publicly traded companies often publish future plans for their operations and spending, called company guidance, to help investors analyze company performance. Some, but not all, companies release this information in corporate presentations, press releases, and official filings with the U.S. Securities and Exchange Commission. An analysis of company guidance from 41 currently operating and 21 formerly operating E&P companies shows that actual capital expenditure in the last four years exceeded announced spending by 9% on average (Figure 4). However, actual spending in 2019 and 2020 showed a smaller deviation from guidance numbers, likely due to declining capital expenditure budgets in those years. If actual spending compared with company guidance in 2021 matches the deviation seen in 2020, this year’s capital expenditure will be effectively flat compared with actual spending in 2020. As of December 10, 2021, only two companies in the dataset have provided guidance on capital expenditure in 2022.

Figure 4. Capital expenditure for 62 U.S. oil companies


U.S. average regular gasoline and diesel prices decrease

The U.S. average regular gasoline retail price decreased nearly 3 cents to $3.32 per gallon on December 13, $1.16 higher than a year ago. The Gulf Coast price decreased 5 cents to $2.94 per gallon, the Rocky Mountain price decreased nearly 4 cents to $3.43 per gallon, and the Midwest, East Coast, and West Coast prices each decreased more than 2 cents to $3.08 per gallon, $3.28 per gallon and $4.16 per gallon, respectively.

The U.S. average diesel fuel price decreased nearly 3 cents to $3.65 per gallon on December 13, $1.09 higher than a year ago. The Gulf Coast price decreased 3 cents to $3.37 per gallon, the East Coast price decreased nearly 3 cents to $3.63 per gallon, the Midwest and Rocky Mountain prices each decreased more than 2 cents to $3.51 per gallon and $3.76 per gallon, respectively, and the West Coast price decreased nearly 2 cents to $4.40 per gallon.

Propane/propylene inventories decline

U.S. propane/propylene stocks decreased by 2.4 million barrels last week to 70.9 million barrels as of December 10, 2021, 8.1 million barrels (10.2%) less than the five-year (2016-2020) average inventory levels for this same time of year. Gulf Coast, East Coast, Midwest, and Rocky Mountain/West Coast inventories decreased by 1.3 million barrels, 0.5 million barrels, 0.4 million barrels, and 0.1 million barrels, respectively.

Residential heating oil prices increase, propane prices decrease

As of December 13, 2021, residential heating oil prices averaged nearly $3.35 per gallon, almost 3 cents per gallon above last week’s price and $1.01 per gallon higher than last year’s price at this time. Wholesale heating oil prices averaged nearly $2.39 per gallon, 13 cents per gallon above last week’s price and almost 85 cents per gallon above last year’s price.

Residential propane prices averaged nearly $2.70 per gallon, more than 1 cent below last week’s price but almost 80 cents per gallon above last year’s price. Wholesale propane prices averaged nearly $1.20 per gallon, almost 3 cents per gallon above last week’s price and 48 cents per gallon above last year’s price.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

Tags: financial marketsoil/petroleumproduction/supply