Markets in Focus


Q2 2022

Markets in Focus | Energy Energy Q2 2022

Through the first quarter of 2022, the oil and gas industry continues to enjoy an elevated price environment with crude prices above $100/bbl and natural gas prices above $4/mcf for most of 1Q22. Despite prices being at their highest since 2008 and sustained upward pricing pressure as a result of the Russian invasion of Ukraine and supply constraints given lack of investment in new well development plans, the total rig count has not increased, and BOE/d production remains below pre-pandemic levels (estimated 12.0 million bpd in 2022 versus 12.8 million bpd in 2019 and estimated 97.4 Bcf/d in 2022 versus 93.1 Bcf/d in 2019). As it stands, it appears operators have settled into a flat to modest growth mode with more focus on generating returns for shareholders, waiting for lower hedging prices to roll off and improving balance sheets after multiple difficult years prior to 2021 as opposed to sacrificing free cash flow for increased production. Capital markets are coming out from the shadows with new institutional investors looking to reengage shunning the climate change narrative that has attempted to villainize the industry in exchange for investments in what has emerged as the most stable (and clean) global form of energy to satisfy increased global demand for the next 20+ years.

As the industry continues to reinvent itself in response to the global outcry for energy producers to reduce carbon emissions, many have made strategic ESG-friendly changes to their organizations and operations. Today, it is not uncommon to see emissions reduction plans, detailed ESG reports and specifics around community outreach in investor presentations, SEC filings and on company websites. However, many are still not satisfied with this level of attention to detail and would prefer to see a much more aggressive change to renewable energy. It appears that the oil and gas industry is caught between a rock and hard place – many would prefer for production to increase to help lower prices at the pump and relieve inflation pressure while others would prefer more stringent oversite of the industry and a faster shift to renewables. Finding a happy balance will continue to be a challenge for the industry moving forward.