In early 2024, a significant decline in U.S. natural gas prices impacted the cash flow of many oil-producing companies. Financial reports from 36 publicly traded oil firms showed a combined cash flow from operations of $23.3 billion in the first quarter, a 12% drop compared to the same period last year, according to the U.S. Energy Information Administration (EIA).
Although the benchmark price for West Texas Intermediate (WTI) crude oil fell by 2% year-over-year, crude oil production among these companies increased by 5%, reaching nearly 4.2 million barrels per day. This growth was supported by OPEC+ production cuts, which helped maintain higher crude prices and encouraged increased production from non-OPEC+ producers, including U.S. firms.
Typically, rising crude production with stable prices would lead to increased cash flow. However, the EIA noted that significantly lower natural gas prices hindered revenue for these companies. A notably warm winter led to an oversupply of natural gas in the first quarter, driving prices down to their lowest levels in 30 years and prompting producers to reduce drilling activity.
In mid-February, the Henry Hub price hit its lowest mark since 1995, excluding a few days during the pandemic in 2020. Natural gas prices plummeted by 26% from Q1 2023 to Q1 2024. January saw the Henry Hub average $3.18/MMBtu, but by March, it fell to $1.49/MMBtu, marking the lowest inflation-adjusted average since at least 1997. The EIA reported that prices from February through April 2024 were the lowest ever recorded for those months.
Although the analyzed companies focus primarily on crude oil, associated natural gas typically makes up about 30% of their production. This connection meant that oil producers faced decreased cash flows early this year despite increasing crude output.
ExxonMobil, for instance, reported disappointing first-quarter earnings that fell short of expectations due to lower natural gas prices and refining margins. Its upstream earnings declined by $955 million compared to Q1 2023, driven largely by a 32% drop in natural gas realizations.
Chevron also experienced a decline in first-quarter earnings, primarily due to lower margins on refined products and decreased natural gas realizations, despite higher upstream sales volumes in the U.S. The company continued to struggle with weak natural gas prices, reporting second-quarter earnings below analyst expectations.
Despite the pressure from low natural gas prices, Exxon’s record oil production in the Permian Basin and offshore Guyana helped offset some losses. The company indicated that higher crude realizations and cost savings mitigated the impact of lower natural gas prices and increased expenses.
Currently, the U.S. benchmark natural gas price stands at around $2.60/MMBtu. However, futures pricing suggests a potential spike in 2025, with expectations that average natural gas prices could rise by 44% next year, marking the steepest increase since 2022.
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