Debt increases by $25 billion as U.S. producers focus on growth and shareholder returns

The volume of debt held by large U.S. oil and gas companies increased by $25 billion over the past year as they sought to maintain growth and return cash to shareholders.

Capex, M&A, dividends, and share buybacks meant spending averaged $55-60 billion per quarter in 2023 for 43 U.S.-based operators that produce over 5,000 boe/d domestically.

These are similar averages to late 2022 and substantially higher than 2021, based on analysis by Evaluate Energy.

This took place amid a dramatic drop in operating cash flow. New debt and existing cash reserves were required to maintain spending.

By the end of 2023, this group of 43 producers had incurred $11.5 billion in new debt and reduced cash reserves by $13.3 billion – for a year-end net debt position of around $134 billion.

This is a 23% increase over year-end 2022 but significantly down on 2021 averages. The data suggests no immediate cause for concern.

No impact on risk profile: The average debt to capital employed ratio is only 2% higher in 2023, because increases in the value of shareholders’ equity have almost matched increases in debt. This means that ending 2023 with larger debt has so far had next-to-no impact on the risk profile of U.S. oil and gas producers.

Most of the debt does not mature this decade: Evaluate Energy data shows that only 6% of the debt matures in 2024 and only 39% of the debt is due within five years.

Earnings easily cover interest expenses, even with increasing interest rates: Q4 saw the combined group record more than $70 billion EBITDA – more than 30 times the combined interest expenses during the same period. Interest rates have been rising, but relative earnings are high. Even at the group’s highest debt levels of recent years in early 2021, EBITDA was still 17 times larger than interest expenses.

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