E&P companies' profits to reach record highs this year, says Rystad Energy

KUALA LUMPUR, May 5 (Bernama) -- Public exploration and production (E&P) companies are on track to shatter previous record profits this year as high oil and gas prices and surging demand drive financial success, said Oslo-based consultancy Rystad Energy.

In a statement recently, Rystad Energy said its research showed that total free cash flow (FCF), a company’s cash from operations after accounting for outflows and asset maintenance, would balloon to US$834 billion (US$1=RM4.34), a 70 per cent increase from the US$493 billion profits in 2021.

it added that total FCF from public E&Ps fell to around US$126 billion in 2020 as a result of the COVID-19 pandemic and the ensuing oil price collapse, halving the prior year’s total.

As the global economy rebounded and fuel demand increased, last year’s FCF levels surged to nearly US$500 billion, the highest profits ever for the upstream industry, said Rystad Energy.

“The current financial health of public upstream operators is at an all-time high. Still, the good times are set to get even better this year, thanks to a perfect storm of factors pushing profits and cash flow to another record high in 2022,” said Rystad Energy head of upstream research Espen Erlingsen.

Rystad Energy said the main contributing factor to these glowing financials was sustained high oil and gas prices.

It noted that with average Brent oil prices estimated at US$111 per barrel in 2022, a Henry Hub gas price at US$4.20 per thousand cubic feet (Mcf), and a European gas price of US$25 per Mcf, total FCF for public upstream companies will reach US$834 billion this year.

Meanwhile, Rystad Energy expects cash from operations, which is typically used to fund new investments and financial costs such as debt payments and dividends, to rocket this year, breaking the US$1 trillion threshold for the first time.

It noted that the US$1.1 trillion projected annual total is a 56 per cent jump from 2021 levels of US$719 billion, which was the highest yearly total since 2014.

In 2020, Rystad Energy said cash from operations dropped by almost US$200 billion, or around 35 per cent, implying that companies had less money to finance new activity and issue payouts to their owners and as a result, investments also dropped in 2020, falling by almost US$100 billion or around 30 per cent.

-- BERNAMA