How are North American oil and gas producers using their cash?

Early 2021 saw revenues and operating cash flow soar in the North American oil and gas industry.

A new report from Evaluate Energy studies how far this sudden cash injection changed spending habits for 86* U.S. and Canadian oil and gas producers. The full report – focused on cash used for capital spending, net debt repayments, dividends and more – is available for free download at this link.

Source: Evaluate Energy Cash Flow Review – Q1 2021

Major increase in free cash flow

A sharp rise in Q1 2021 revenues aided by improved commodity prices caused the greatest increase in positive ‘free cash flow’ – the $ difference between operating cash flow and capital expenditures – seen in years. This was caused by capital spending not keeping pace with the sharp rise in revenues.

Debt payments take greater priority

The group of 86 companies used this free cash flow to pay off a far greater amount of debt than has been typical. The report goes further and looks at the individual habits of each sub-group in the study:

• The U.S. oil producer peer group recorded high free cash flow since Q3 2020. This is a complete turnaround for the group that had often recorded capital spending and operating cash flow of very similar amounts.
• Canadian oilsands producers generated huge amounts of free cash flow, which is nothing new for the group. Canada’s other oil-weighted producers were the only group to see capex match the rise in operating cash flow, with behaviour that contradicts almost all cash spending patterns observed in the wider industry.
• U.S. and Canadian gas-heavy producers saw free cash flow suddenly appear in Q1 2021. The Canadian group’s past behaviour is more indicative of this being a temporary occurrence as these producers often operate with a ‘financing gap’ (where capex outweighs operating cash flow) as a group. The data does suggest a temporary occurrence for the U.S. group, too, but it is harder to be certain because the group has been slower to increase capex since the height of the pandemic.

For more details on how producers spent their cash in Q1 2021, as well as information on the results of specific companies included in each peer group, download the full report at this link.

Note

*The 86 companies in this report all fit the following criteria:

• They produced over 5,000 boe/d in Q1 2021;
• Their global production was more than 75% weighted towards North American assets; and,
• They all have a December 31 financial year-end.