VINACHEM

Crude oil prices have weakened since 2022 but remain relatively strong, which enhances cash flow as production in the U.S. sets records.

The West Texas Intermediate (WTI) crude oil price averaged $75.96 per barrel in first quarter of 2023, a 20% ($19.21) decrease compared with first quarter 2022 and an 8% ($6.72) decrease compared with fourth quarter 2022.

Higher production resulted in cash from operations increasing 13% ($3.0 billion) compared with first quarter of 2022. Oil production nationwide has increased 1 million barrels per day in April (12.6 million barrels per day) compared to April 2022 (11.6 million barrels per day).

Capital expenditure in first quarter 2023 increased 26% ($3.5 billion) compared with first quarter 2022 to $16.7 billion and increased 12% ($1.8 billion) compared with fourth quarter 2022. Higher capital expenditure supported production increasing 9% (338,000 b/d) in first quarter 2023 from first quarter 2022 and 1% (59,000 b/d) from fourth quarter 2022.

Also, capital expenditures as a share of cash from operations increased to 64%, the highest percentage since the beginning of the pandemic. This share remains below the quarterly average of 104% in the period before the pandemic (2018–19). Historically, the ratio of capital expenditure to cash from operations has been greater than 100%, reflecting the capital-intensive nature of E&P as well as the need for outside sources of capital to fund drilling projects.

Production expenses, reflecting the cost of goods sold, operating expenses, and production taxes, declined 14% from fourth quarter 2022 to $27.19 per barrel of oil equivalent (BOE) in first quarter 2023. Compared with 2Q22, production expenses have decreased 28%.

Debt reduction, which the E&P companies allocated $39.7 billion toward between fourth quarter 2020 and third quarter 2022, has reduced long-term debt 30% below the 2018–19 average.

Shareholder returns, in the form of share repurchases and dividends, accounted for the remainder of the uses of cash in the quarter. Shareholder distributions decreased 32% from fourth quarter to $11.8 billion in first quarter 2023 but remain elevated as a share of cash from operations. Net share repurchases decreased 45% from fourth quarter 2022 to $5.5 billion, and dividends decreased 16% to $6.3 billion.

Cost of goods sold, which includes the cost of materials and labor directly used in production, has been the main driver of production cost increases because of supply chain constraints in 2022. Although the cost of goods sold has declined by 39% from 2Q22 to $13.80/BOE in 1Q23, it remains 62% ($5.26/BOE) above the 2018–19 average of $8.54/BOE. – Yahoo News –