Welcome back to our weekly update on trending topics, macro trends and key management commentary highlighted from earnings call transcripts of S&P 500 companies for the Q4’21 earnings season. With Marathon Oil, Tyler Technologies, Pioneer Natural Resources, Nvidia, Cisco Systems, Devon Energy and Arista Networks among the larger companies that reported results last week, here are some trending topics that emerged during earnings updates from the week of February 14th, 2022:
- The Permian Oil Rush: The U.S. Energy Information Administration (EIA) recently reported that the oil output in the Permian Basin (the biggest U.S. shale oil basin) will rise 71,000 barrels per day (bpd) to a record 5.205 million bpd in March. Subsequently, S&P 500 companies in relevant sectors are reporting on how they intend to capitalize on this growth opportunity in the Permian throughout 2022.
- Accelerating Dividend Growth: Companies are reporting strong dividend growth in Q4 ’21, while others are guiding towards an accelerating dividend growth rate as they head into 2022, signaling long-term profitability across the S&P 500.
- Earnings Q&A Analysis: We delved into analyst FAQ’s of S&P 500 companies who have reported 4Q 2021 earnings thus far. Read on for a detailed summary of the topics that are generating the most questions in the Oil & Gas Exploration and Production industry.
The U.S. Energy Information Administration (EIA) recently reported that the oil output in the Permian Basin (the biggest U.S. shale oil basin) will rise 71,000 barrels per day (bpd) to a record 5.205 million bpd in March. Subsequently, S&P 500 companies in relevant sectors are reporting on how they intend to capitalize on this growth opportunity in the Permian throughout 2022.
We are growing in the Permian at the same time we’re keeping our overall production flat. And I think it’s kind of – you have to watch the headlines and what’s the overall trend. I believe that’s the right mix for us with our assets, with our portfolio, specific to Permian growth because that’s definitely the hot basin. That’s where the marginal barrel comes from.
There are natural governors – I’m speaking kind of from an operations point of view – to prohibit unbridled growth. I think about the supply chain things that obviously peppered throughout my earlier comments, there’s also the takeaway issues Jeff was just talking about. There are some things that I think will keep that growth in-check.
Now, all that said, certainly, I would expect continued growth in the Permian to offset declines from the other areas. Overall, we’re – staying with overall maintenance capital, we believe, is the right approach for our shareholders, for our organization, and it seems to be working quite well so far.
- Clay M. Gaspar – Devon Energy Corp., Executive Vice President & Chief Operating Officer
I think broader terms when you think about the macro for the Permian Basin, we’re going to need another 2 BCF a day pipeline every couple years in the Permian Basin. And so I think that’s – as the Basin, even at the modest growth rates that we talk about, you’re still going to need that level of capacity takeaway.
Specifically as it relates to Pioneer, there’s a couple pipelines that are in the works right now that are looking for commitments. We’re evaluating those and most likely we will take volumes on one of those to go into the Gulf Coast and that’ll be here in the next three to four months. I think those things will get announced at whichever one of those pipelines gets done.
In terms of what our exposure is, we move probably 35% of our gas out to the California market, call it 45% to 50% down to the Gulf Coast market and at least 15% to 20% in the Waha market today. Longer-term, I think we’ll reduce that Waha exposure as we move more gas out of the basin, but that’s really where we sit currently.
- Richard P. Dealy – Pioneer Natural Resources Co., President & Chief Operating Officer
Phil, fourth quarter, Permian does look strong. And one thing that we do see from time to time is with our non-operated joint venture position, sometimes the way production gets reported in by partners can result in a little bit of lumpiness in those numbers. But broadly speaking, the Permian is healthy and getting better.
I think, 2022, Permian production will be a little bit better than we showed at our Investor Day last March and, roughly speaking, up around maybe 10% compared to full year average in 2021. And that is the largest piece of what we would anticipate in terms of production growth next year. There is some growth in base and other primarily. As Pierre said in his comments, we’ve got lower planned turnaround activity at TCO, and we expect some more uptime at Gorgon. And then, that’s offset by a few asset sales that we would anticipate. So those are the significant moving pieces in production for 2022.
- Michael K. Wirth – Chevron Corp., Chairman & Chief Executive Officer
At the basin level, consistent with prior indications around our capital allocation mix, we will be spending approximately 75% of our capital budget in the Eagle Ford and Bakken, with the balance going to the Permian and Oklahoma. Included within our Permian program is the continued disciplined progression of our emerging Texas Delaware oil play with a planned four well appraisal plan later in the year. I’m excited about the restart of a more steady activity level in both Permian and Oklahoma and the strong economics associated with these opportunities.
- Mike Henderson – Marathon Oil Corp., Executive Vice President-Operations
Companies are reporting strong dividend growth in Q4 ’21, while others are guiding towards an accelerating dividend growth rate as they head into 2022, signaling long-term profitability across the S&P 500.
Our weather-normalized core earnings per share risen 84% and approximate 8% compound annual growth rate since we exited our unregulated generation business in 2013, while our dividends paid per share have increased approximately 38% over the same time period. This has driven a strong total return of nearly 220% for our shareholders from 2013 to 2021, which was significantly above our utility peer average. I am very pleased with our past performance. You can rest assured that our team will remain focused on enhancing performance in 2022 and in the years ahead, so we can continue to deliver superior value to our customers, communities and shareholders.
- Warner L. Baxter – Ameren Corp., Executive Chairman
We aim to use 40% to 60% of our free cash flow to consistently grow our dividend with the remaining free cash flow used for share repo. And just yesterday, we announced a 10% increase to our quarterly dividend, marking the fourth consecutive year of double-digit increases. We have now raised our dividend 19 times in the past 18 years.Our ASR program concluded in the first quarter, and as a result we retired approximately 14.4 million shares. We are now more than halfway towards executing our $5 billion repo commitment by the end of calendar 2022.
- Prashanth MahendraRajah – Analog Devices, Inc., Senior Vice President-Finance & Chief Financial Officer
In terms of capital allocation, we returned $6.4 billion to shareholders during the quarter. It was comprised of $4.8 billion of share repurchases and $1.5 billion for our quarterly cash dividend. Given the confidence we have in our business today and into the future, our board has authorized an additional $15 billion for share repurchases, bringing the total to approximately $18 billion. We are also raising our dividend by $0.01 to $0.38 per quarter, which represents our twelfth increase.
Combination of our dividend increase, additional share repurchase authorization and higher share repurchases during the quarter demonstrates our commitment to returning excess capital to our shareholders and our confidence in the stability of our ongoing cash flows.
- Richard Scott Herren – Cisco Systems, Inc., Executive Vice President & Chief Financial Officer
There is no other water and wastewater service provider in the United States with our scale and capability. And for our investors that rely on our dividend, we are committed to grow our dividend at the high end of the 7% to 10% range. We know that the best way to secure your confidence in us is to deliver. That’s exactly what we did in 2021 and what we are committed to do going forward.
- M. Susan Hardwick – American Water Works Co., Inc., President, Chief Executive Officer and Chief Financial Officer
The company has paid a cash dividend to shareholders every year since going public in 1948. And in 2021, we paid total cash dividends of approximately $466 million. Earlier this week, our board approved a $3.58 per share annual dividend for 2022, representing our 66th consecutive annual increase in the dividend. This represents a 10% increase from the $3.26 per share paid in 2021. Additionally, we have an active share buyback program dating back to 1994. In the fourth quarter, we used $50 million to purchase 400,000 shares. And for the year, we used $334 million to purchase 2.6 million shares. As of December 31, we were authorized to repurchase up to 11.9 million shares, and we continue to be active in this program in 2022.
- Carol B. Yancey – Genuine Parts Co., Chief Financial Officer & Executive Vice President
Earnings Q&A Analysis
The data referenced below is based on Q4’s proprietary analysis performed on the Earnings Call Q&A sessions of S&P 500 organizations within the “Oil & Gas Exploration and Production” sector (HES, COP, PXD, DVN, MRO), that reported earnings over the last few weeks. The charts below highlights the key topics that analyst queries focused on in these calls, displayed as a % of all questions asked.
As per the chart above, queries revolving around the accelerating oil output in the Permian Basin was the key trending topic being addressed by organizations in the Oil & Gas Exploration and Production sector, covering 6% of all questions asked. Company-specific metrics like Dividend Increases, Free Cash Flow Returns and Hedging plans came in 2nd place with about 9% of questions focused around that topic, while subjects like Powder River basin, procyclical buybacks, Guyana and Asset Divestitures were a few of the topics coming in at 3rd place with a frequency of 2% of mentions for each.
Thanks for reading our final issue of the Earnings Recap blog for the Q4’21 Earnings season. Stay tuned for our next iteration when Q1’22 Earnings kicks off in April!
Reference – in case you’re interested, please feel free to review the prior versions of this blog from earlier this quarter: