Investment and price trends in US energy market: EIA

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The U.S. Energy Information Administration has published its 2024 Annual Financial Review Upstream report. This analysis focuses on financial and operating trends on an annual basis for 158 global oil and natural gas upstream companies from 2015 to 2024.

In 2024, the global upstream crude oil and natural gas industry faced a challenging financial landscape marked by declining commodity prices and shifting investment patterns. Crude oil prices fell by 6 percent in real terms compared to 2023, while natural gas prices dropped 12 percent, reaching their lowest real value since at least 2000. These price declines significantly impacted company earnings, reducing cash from operations by 9 percent year-over-year to $625 billion. The downturn in natural gas prices also prompted a 1 percent reduction in gas production, even as petroleum liquids production rose by 2 percent.

Lower prices not only reduced revenue but also eroded the value of proved reserves, which are calculated based on average first-of-month prices over a 12-month period as mandated by the U.S. SEC. This diminished value further pressured financial performance across the sector.

In response to weakened cash flows, companies pulled back on capital deployment. Capital expenditure dropped by 14 percent to $343 billion, driven by reduced natural gas output, lower production costs, and gains in drilling productivity. Nevertheless, total upstream costs incurred rose 32 percent due to significantly increased spending on acquiring both proved and unproved reserves, particularly in the U.S. Exploration and development spending climbed 9 percent, highlighting continued interest in securing future resources despite the softer pricing environment.

Investor returns also saw a correction. Return on equity for energy companies fell to 10 percent in 2024, down from the previous year, while U.S. manufacturing firms experienced a decline to 13 percent. Distributions to shareholders, including dividends and share buybacks, remained relatively high as a share of operating cash, though total dividend payouts fell to $135 billion in line with overall financial tightening.

Overall, 2024 was marked by a recalibration of the upstream energy sector’s investment and growth trajectory. Companies balanced reduced earnings with selective investment in reserves while navigating persistent price volatility and adapting to long-term market pressures.

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