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Oil And Gas Producers To Break New Cash Flow Records

Despite rising costs, oil and gas producers globally are expected to book new records in cash flows and offer the best return on capital employed (ROCE) in 15 years, BMO Capital Markets said in a new report cited by Upstream.

Stronger oil and gas prices will be the key driver of record cash flows in the industry, according to an analysis by BMO Capital Markets of 120 oil and gas firms globally. 

Last year, for example, those companies generated a record $300 billion of free cash flow, compared to just $17 billion in 2020, the Canadian bank said. And cash flows are set to rise further as energy commodity prices rally. 

The massive cash flows are expected to boost the role of the oil and gas sector in investing in the energy transition and decarbonization, BMO Capital Markets noted. 

Despite rising costs of production and cost inflation in the supply chain, the bank says that the oil and gas sector offers “compelling value for a select subset of producers with vastly improving returns profiles.” 

“We continue to believe that global under-investment presents substantial upside to fundamental support levels through 2025,” BMO said in its report carried by Upstream. 

The oil and gas sector’s return on capital employed (ROCE) could hit next year the highest level since the 2008 financial crisis, with ROCE possibly topping 25% by 2023. 

In another report, Deloitte said this week that oil and gas exploration and production (E&P) firms globally could generate combined cash flows of a record $1.4 trillion this year, thanks to high prices in the ongoing readjustment in the energy markets. 

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Capital discipline has resulted in the oil and gas industry being “in one of its healthiest periods currently, with its lowest ever leverage ratio (20%) and one of its highest ever dividend yields (6%), compared to other sectors,” according to Deloitte.  

By Michael Kern for Oilprice.com 

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  • George Doolittle on August 26 2022 said:
    At this price and with interest rates not only elevated but said as told warned to be going higher...yet again... absolutely free cash flows from US based energy plays are absolutely enormous at the moment without any doubt.

    That doesn't make Tesla or $IBM any less of a buy on days like today however needs noting as both are a play on keeping and sustaining an exceptionally well run electrical grid.

    Long $unp Union Pacific Railroad
    Strong buy

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