Oil and gas exploration and production (E&P) firms globally could generate combined cash flows of a record $1.4 trillion this year, thanks to high prices in the ongoing readjustment in the energy markets, Deloitte said in a new report on Thursday.
High oil and gas prices and financial discipline have turned the tide for the global upstream industry, and its efforts at capital discipline have paid off, Deloitte said.
Capital discipline has resulted in the oil and gas industry being “in one of its healthiest periods currently, with its lowest ever leverage ratio (20%) and one of its highest ever dividend yields (6%), compared to other sectors,” according to Deloitte.
The consultancy estimates that the industry will see its highest ever free cash flow of US$1.4 trillion in 2022 if Brent Crude price averages $106 per barrel.
Big Oil and U.S. shale producers alike reported record or close to record earnings and cash flows for the second quarter amid soaring commodity prices and multi-year high refining margins.
Global upstream is set to generate up to $1.5 trillion in surplus cash by 2030, possibly with 70 percent of this surplus generated by 2024. This additional cash could be enough to fund and balance both low-carbon and core oil and gas priorities this decade, Deloitte said.
Moreover, the U.S. shale industry could potentially become debt-free by early 2024 if prices stay strong and discipline prevails. Shale producers, which generated negative cash flows in nine out of the last ten years, will likely see record-high free cash flows in 2021-2022 that could overcome the decade-long loss of $300 billion, according to Deloitte.
Strengthened with massive cash flows, the global upstream industry could raise low-carbon capital expenditures to 30% of total capex by 2030 in certain scenarios, up from 5% currently, the consultancy said.
“The oil and gas industry has faced real disruption over the past few years, some of which originated long before the Covid-19 pandemic began to make its impact. However, the unexpected result of this volatility is that the industry seems to be in a relatively strong position,” Amy Chronis, vice chair, U.S. Oil, Gas and Chemicals Leader, Deloitte LLP, said, commenting on the report.
“Those who invest in new business models and remain resilient to the changing market dynamics will be more likely to sustain, lead and win throughout this energy transition.”