Data compiled by the US Energy Information Administration (EIA) from the financial reports of 40 publicly traded US oil exploration and production (E&P) companies reveals that, despite a reduction in cash generated from their operations, these companies increased their capital expenditure in first- quarter 2023 compared with fourth-quarter 2022.
These companies account for 32% of all crude oil produced in the US in first-quarter 2023, or about 4 million b/d.
“Previously, rising crude oil prices in the first half of 2022 had driven increased production and had helped companies post multiyear highs for cash from operations. Capital expenditure growth had been much slower over the past two years,” EIA said.
In first-quarter 2023, lower crude oil prices reduced cash from operations for these companies, which declined 18% ($5.8 billion) compared with fourth-quarter 2022, to $26.2 billion. At the same time, capital expenditure in first-quarter 2023 was 12% ($1.8 billion) higher compared with the previous quarter, totaling $16.7 billion. As a result, the proportion of capital expenditure relative to cash from operations rose to 64%, marking the highest percentage since third-quarter 2020.
“Capital expenditure made by E&P companies represents spending on property, plant, and equipment used for producing crude oil. Historically, when crude oil prices increase, companies increase their capital expenditure to increase crude oil production by deploying more drilling rigs. Changes in the number of oil rigs typically follow changes in oil prices, lagging by about 4 months. Recent declines in crude oil prices and oil rig counts suggest that capital expenditure could decline in the coming quarters,” EIA said.
WTI crude oil prices, which reached an average of $108.45/bbl during second-quarter 2022, experienced a 31% decline, averaging $74.73/bbl in first-half 2023. The oil-directed rig count peaked at 627 rigs at the beginning of December 2022 and has since declined by 16% (98 rigs) through the end of July 2023.
