Global oil and natural gas explorers made some wrong-way bets on the direction of commodity prices during 2Q2021, with hedging losses for 90 of the biggest U.S. and overseas producers totaling $11 billion, the Energy Information Administration (EIA) said Wednesday.

The net hedging losses among the world’s largest exploration and production (E&P) companies were the largest in the 2016-2021 period, the EIA’s Petroleum and Liquids Fuels Markets team said in a note. 

“In this study of 90 companies, the combined petroleum liquids production level decreased 3% in 2Q2021 from 2Q2020, and natural gas production remained the same,” the EIA researchers said. 

The findings are part of a financial review of the global industry’s performance between April and June. During the period, Brent crude prices more than doubled to average $69/bbl. Natural gas prices were up by 69% year/year.

The EIA study showing that production was flat or lower in 2Q2021 comes on the heels of rising gas consumption, along with sharply higher commodity prices. Global natural gas demand has risen, but supply challenges could add to the thirst for oil ahead of winter, EIA noted in a separate report.

The EIA’s Weekly Petroleum Status Report, released Wednesday, showed output climbed to 11.1 million b/d for the week ended Sept. 24, up from 10.6 million b/d for the prior week. It was also up from 10.1 million b/d for the week of Sept. 10, when flooding and power outages caused by Hurricane Ida left widespread production challenges in the Gulf of Mexico.

Price Advantage

Although the one-time hedging losses were high, rising commodity prices worked to the benefit of the bottom lines. The 90 E&Ps reported taking in $138 billion total in cash from operations during the second quarter, the highest amount since 4Q2018. 

Around 88% of the E&Ps also reported positive free cash flow, and 68% touted positive upstream earnings.

Of the E&Ps reviewed by EIA, 54 are headquartered in the United States. Researchers also reviewed results for 16 producers in Canada and 10 in Europe. Other companies included in the survey were based in Argentina, Brazil, Chile, China, Colombia and Russia.

About 40% (37) of the E&Ps included in the study produced under 50,000 b/d in 2Q2021. Twenty produced 100,000-499,000 b/d, while 11 each produced 1 million b/d-plus, 500,000-999,000 b/d or 50,000-99,000.

Energy demand has picked up from the low point of 2020, which was decimated by Covid-19, but total capital investments during 2Q2021 were lower. Investments fell by 9% year/year to $53 billion.

Upstream capital expenditures (capex), which have fallen as efficiencies have risen, averaged $9.00/boe in 2Q2021. That compares to upstream capex averaging $14/boe in the second half of 2019, according to EIA’s team. 

E&Ps also continued to rein in their spending during 2Q2021, with net debt down by $34 billion for the 90 companies. The long-term debt-to-equity ratio stood at 50%. By comparison, EIA noted that for U.S. manufacturing companies, the debt-to-equity ratio in 2Q2021 stood at 61%.

Combined market capitalization for the E&P group rose by 41% from a year ago. The return on equity averaged 5% overall, lower than U.S. manufacturing returns, the EIA researchers said.

The 90 companies reviewed by EIA included energy majors BP plc, Chevron Corp., Eni SpA, Equinor ASA, ExxonMobil, Repsol SA and Royal Dutch Shell plc. 

The U.S.-based E&Ps reviewed included some of the biggest Lower 48 operators, including Antero Resources Corp., APA Corp., Cabot Oil & Gas Corp., Chesapeake Energy Corp., ConocoPhillips, Continental Resources Inc., Devon Energy Corp., EOG Resources Inc., Marathon Oil Corp., Occidental Petroleum Corp., Ovintiv Inc. and Pioneer Natural Resources Co.