The persistence U.S. oil and gas producers have displayed over the last eight years to improve shareholder returns and build resilience—in operations and capital budgets—is proving U.S. hydrocarbons to be a viable core asset amid the energy transition, according to the Ernst and Young study on U.S. oil and gas reserves, production, and ESG benchmarking, which documents how the industry’s 50 largest publicly traded exploration and production companies responded to higher commodity prices in 2022, based on year-end 2022 U.S. oil and gas reserves.
The studied companies earned, on a pretax basis, $32.21, based on a per-barrel-of-oil equivalent (BOE) in 2022—more than triple the $10.00 realized in 2014, which was at the height of the shale boom and the last time oil prices were in the triple digits. These improved earnings demonstrate the studied companies’ ability to control costs in a much higher inflationary environment than existed in 2014. Production costs actually decreased from $14.09 per BOE in 2014 to $12.56 per BOE in 2022—despite inflation, due in large part to technological advances and operational efficiencies gained.
The EY analysis revealed disciplined drilling plans by the companies studied, which achieved positive organic reserves growth with half of the capital spend seen in 2014 by focusing more on discovered and developed plays than new ones. A significant decline in exploration expenses was observed, from $9.1 billion in 2014 to $2.3 billion in 2022. Yet exploration and extension drilling added 3.9 billion barrels to oil reserves and 21.9 billion cubic feet (bcf) of gas reserves, while only 3.2 billion barrels and 15.9 bcf were produced, showing that the sector continues to demonstrate organic growth and a capacity to maintain record levels of production for the medium term.
“U.S. oil and gas producers achieved something last year not done in recent years: deliver both strong shareholder returns and organic reserves growth,” said Herb Listen, EY Americas Energy and Resources Assurance Leader. “The sector has learned harsh lessons of past boom-bust cycles to improve the resilience of their core business by displaying significant capital discipline and prioritization of shareholder returns—core tenets that will serve them well as commodity prices fluctuate.”
The studied companies recorded a combined $333.0 billion in 2022 revenues, surpassing the previous record of $217.0 billion recorded by the study group in 2014. Additionally, the EY analysis found impairments dipped to $1.0 billion, the lowest amount in the five-year study period, and payments of dividends and share repurchases by independent producers increased 210 percent from $19.0 billion in 2021 to $58.8 billion in 2022.
“The energy crisis of 2022 forced a realization for many on the longer-term necessity of oil and gas in the global energy mix for decades to come,” said Pat Jelinek, EY Americas Oil and Gas Leader. “The focus is now on how to manage oil and gas production through the energy transition. Though strategies may vary, oil and gas producers are showing that they can be the best stewards of the US resources under their control by decarbonizing and increasing operational efficiencies, all while innovating and scaling newer technologies and business models such as carbon capture, differentiated gas and hydrogen.”
ESG Reporting Continues to Improve
ESG reporting continues to expand and improve, among the companies studied, in efforts to preserve the social license to operate rather than win over shareholders. Of the studied companies, 88 percent published a sustainability or ESG report, up six percentage points from 2021, including all the integrated companies and 95 percent of large independents. Furthermore, 90 percent of the companies reported at least one scope of emissions. Fifteen companies in the study group reported on Scopes 1 and 2 emissions, as well as at least one category of Scope 3—usually the category covering emissions in the refining of their crude oil or the combustion of refined products by final consumers.“As producers continue to improve infrastructure and operational integrity, oil and gas production in U.S. shale will be advantaged from a carbon intensity perspective due to various factors from geology, logistics and environmental engineering,” said Ryan Bogner, EY Americas Digital Sustainability Leader. “These factors make it a highly resilient business and core holding for any company intent on producing oil and gas as the energy transition unfolds.”
About the Study
The EY US oil and gas reserves, production, and ESG benchmarking study is a compilation and analysis of U.S. oil and gas reserve and production information reported by publicly traded companies to the SEC and an analysis of certain publicly reported ESG disclosures, as applicable. It presents results for the five-year period from 2018 to 2022 for the 50 largest companies based on 2022 end-of-year U.S. oil and gas reserve estimates. These companies represent approximately 42 percent of the U.S. combined oil and gas production for 2022 and serve as a bellwether of industry trends.