For the first time ever, U.S. oil and gas firms spent more of their revenues on dividends and share buybacks than on exploration and production in new wells in 2022, a new study by E&Y showed on Tuesday.
The study, which collates analysis from 2022 financial returns of the 50 largest independent U.S. oil and gas companies, found that those firms’ total payouts on dividends and share buybacks jumped by 210% last year—from $19.0 billion in 2021 to as much as $58.8 billion in 2022. The payouts to investors exceeded the $55 billion the largest U.S. independents spent on exploration and development.
Development and exploration costs as a percentage of netback – that is revenues less production costs – fell from 32% in 2021 to 28% in 2022, due to the ongoing shift in capital allocation toward dividends and share repurchases, E&Y said.
After years of poor returns and a general feeling that investment in the shale patch is out of favor, the top U.S. shale producers rose to the challenge last year with a focus on efficiency and discipline. Companies are investing in their futures with expanded capital budgets, but not at the expense of returns, according to E&Y.
“The leading companies in the US sector responded to the challenge with a relentless focus on capital discipline and durable cost takeout. This attention to the bottom line and returns to investors has paid off,” the co-authors of the report wrote.
The studied companies booked a combined $333 billion in revenues last year, surpassing the previous record of $217 billion recorded by the study group in 2014 at the height of the shale revolution and the previous time oil prices hit triple digits, the study showed.
E&Y also expects further consolidation in the shale patch.
“We expect to see M&A activity further increase this year (and even more so in 2024) as the economy stabilizes and expectations begin to converge,” said Bruce On, EY US-West Region Strategy and Transactions Energy Leader.
The latest merger in the U.S. shale patch was announced on Monday, after Permian Resources signed a deal to buy Earthstone Energy in an all-stock deal valued at $4.5 billion, which is expected to create a $14-billion premier producer in the Delaware basin in the Permian.