Where Are Oil and Gas Companies Investing Their Cash?

Oil and gas producers are sitting on record amounts of cash as soaring oil prices push profits higher.

According to a new report out by Evaluate Energy, major American and Canadian oil and gas producers have seen their free cash flow rise to $29.8 billion, an increase of 34% over Q4, 2021.

The report looked at spending at 82 American and Canadian oil and gas producers – each producing over 5,000 boe/d in Q1 2022 – and found that although capital expenditure spending also dramatically increased in Q1 2022, the rise in commodity prices and dramatic leap in operating cash flows outpaced expenditure.

Some pundits (Oil and Gas IQ included) have speculated that the long-term consequence of the Russian invasion of Ukraine would be an acceleration of the energy transition as nations sought to shore up vital energy dependence. This would require increased investment and spending in new energy sources - such as renewables, biofuels, and hydrogen – and technology, such as Carbon Capture Storage and Utilization (CCUS).

But where are oil and gas producers funnelling their newfound cash?

There’s been a significant increase in capital expenditure spending, over 60% of companies evaluated in the report increased their spend in the first quarter and it’s the first time that all non-oilsands producers increased capital spending.

Investors are also getting a payout from the sustained oil prices. Dividend payments to shareholders accounted for 27% of the cash used.

The sums total of debt repaid reached a high of $10 billion dollars, but the high operating cash more than offset debt repayment.

“Repaying debt only accounted for 25% of all cash used in Q1,” wrote report author Mark Young, Senior Analyst at Evaluate Energy. “This continued relatively low percentage at a time of record free cash flow could indicate that the most pressing debt priorities across the industry are being resolved, even if the dollar amounts involved in debt repayment spending remain high.”

Industry watchers speculate that oil prices may fall later this year as the spectre of a global recession looms. But, in the meantime, Mark Young expects that the spending outlook is uncertain.

“Budgets are subject to change. Events in Ukraine and sanctions on Russia may lead some producers to increase 2022 budgets further. We anticipate such increases will likely be tempered given general geopolitical uncertainty, unclear long-term demand projections and constraints in the supply sector,” he writes.