Story by Tsvetana Paraskova for Oilprice.com: The slump in U.S. natural gas prices in early 2024 affected the cash flow generation of dozens of listed, mostly oil-producing companies.
The financial reports of 36 publicly traded oil companies that produce most of their crude oil in the United States showed that combined cash from operations dropped to $23.3 billion in the first quarter of 2024, down by 12% compared to the first quarter of last year, the U.S. Energy Information Administration (EIA) said in an analysis this week.
The benchmark U.S. crude prices, West Texas Intermediate (WTI), fell by 2% between the first quarter of 2023 and the first quarter of 2024. However, the U.S. crude oil production by these 36 public companies rose by 5% to almost 4.2 million barrels per day (bpd).
That’s because the OPEC+ production cuts have supported crude oil prices over the past year and incentivized higher production among non-OPEC+ producers, including U.S. firms, the EIA said.
Higher crude production at nearly flat prices would typically mean rising cash from operations for the companies. However, “substantially lower natural gas prices likely hampered revenue for these companies,” the EIA noted.
One of the warmest winters on record in the United States created a natural gas glut in Q1, dragging benchmark gas prices to their lowest levels in three decades and prompting producers pumping at record rates to scale back drilling activity.
The front-month U.S. benchmark price at the Henry Hub settled in mid-February at its lowest level since 1995 – except for a few days during peak pandemic in 2020.
U.S. natural gas prices plunged by 26% from the first quarter of 2023 to the first quarter of 2024.
In January, the Henry Hub price averaged $3.18/MMBtu, then dropped to $1.49/MMBtu in March, marking the lowest average monthly inflation-adjusted price since at least 1997. In addition, prices from February through April 2024 were the lowest ever recorded for these months, the EIA says.
The 36 public companies analyzed by the EIA are focused on crude oil production, but associated natural gas output still usually accounts for about 30% of their production.
Due to this share of natural gas output in overall production, oil producers saw decreased cash flows early this year despite raising crude production.
Exxon, for example, reported underwhelming earnings for the first quarter that were lower than consensus estimates, due to declining natural gas prices, refining margins, and non-cash adjustments. The yearly decline in earnings was the result of industry refining margins and natural gas prices coming down from last year’s highs to trade within the ten-year historical range.
Exxon’s upstream earnings decreased by $955 million from Q1 2023 “driven by a 32% decrease in natural gas realizations and other primarily non-cash impacts from tax and inventory adjustments as well as divestments,” the supermajor said in April.
At Chevron, “First quarter 2024 earnings decreased compared to last year primarily due to lower margins on refined product sales and lower natural gas realizations, partly offset by higher upstream sales volumes in the U.S.,” the other U.S. supermajor said.
Weaker natural gas prices and realizations continued to drag Chevron’s Q2 earnings, too. Chevron booked second-quarter earnings below analyst expectations, weighed down by lower refining margins and weak natural gas prices, as it announced the relocation of the company’s headquarters from San Ramon, California, to Houston, Texas.
Exxon’s record oil production in the Permian and offshore Guyana more than offset weak natural gas prices in the second quarter.
In the upstream, Exxon said that higher crude realizations and structural cost savings offset lower natural gas prices, higher expenses, and lower base volumes due to divestments of non-strategic assets and government-mandated curtailments.
The U.S. benchmark natural gas price currently trades around $2.60/MMBtu, but the futures curve suggests that prices could spike in 2025. Futures prices indicate that next year U.S. natural gas prices could average 44% higher than in 2024, which, if materialized, would be the steepest jump in America’s natural gas prices since 2022.
By Tsvetana Paraskova for Oilprice.com
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