Oil Companies Slash Debt To Pre-Crash Levels

Global energy companies reduced their debt for seven quarters running in the second quarter of 2018, cutting their long-term debt-to-equity ratio to the lowest since the third quarter of 2014, when oil prices started crumbling, the EIA said in its Q2 2018 financial review of 107 oil and gas companies worldwide, including 76 U.S. companies.

Based on data from the companies’ filings with the SEC, the EIA found that the free cash flow—the difference between cash from operations and capital expenditure—came in at US$119 billion for the four quarters ending June 30, 2018, the largest four-quarter sum in the period 2013 to 2018. In addition, cash from operations in Q2 2018 was US$118 billion, up by 27 percent compared to the second quarter of 2017.

Capital expenditures also increased year on year in Q2—by 2 percent to US$70 billion, the EIA review of 76 U.S. energy companies, 13 Canadian firms, 9 European, and 9 other companies showed.

About two-fifths of companies reported positive free cash flow, and 78 percent reported positive upstream earnings in Q2 2018.

That was mostly due to the higher oil prices. Brent Crude oil prices were 48 percent higher in Q2 2018 than in Q2 2017 and averaged $75 per barrel, the highest since the fourth quarter of 2014, EIA data showed.

At the companies reviewed, liquids production increased by 2.3 percent in Q2 2018 from Q2 2017, while natural gas production rose by 1.8 percent over the same period.

The combined market capitalization of energy companies rose by 24 percent from Q2 2017 to Q2 2018. The return on equity (ROE) for energy companies in the second quarter of this year was the highest since Q3 2014, but remains lower than U.S. manufacturing company returns, according to the EIA.

The rise in crude oil prices this quarter could contribute to increases in cash from operations and capital expenditures, said the EIA in its review, which included Big Oil, Rosneft, and Sinopec, and many smaller companies and U.S. companies focused on shale production.

By Tsvetana Paraskova for Oilprice.com