EY says U.S. E&P fared well in 2023 while ESG reporting increased further

In August, Ernst and Young LLP (EY) released a study that is an annual compilation and analysis of US oil and gas reserve and production information. This is derived from data reported by publicly traded companies to the United States Securities and Exchange Commission (SEC), along with an analysis of certain publicly reported environmental, social and governance (ESG) disclosures, as applicable. It presents results for the five-year period from 2019 to 2023 for the 50 largest companies, based on 2023 end-of-year U.S. oil and gas reserve estimates.  

These companies represent approximately 42% of the U.S. combined oil and gas production for 2023, and EY believes that these companies are a good bellwether of industry trends. However, the company says the U.S. oil and gas industry is unique, and the conclusions that its analysts draw do not necessarily apply to the rest of the world. 

Companies have been classified into three peer groups: integrated companies (integrateds), large independents and independents. Integrateds are companies that have oil-refining and marketing activities, in addition to exploration and production (E&P) activities. Independents do not have oil-refining and marketing activities but may have midstream operations. Independents are classified as “large,” if their worldwide reserves exceeded 1 Bboe at the end of 2023. 

In this year’s study, EY looked at the impact of moderating oil prices vis-à-vis 2022 oil prices to operating results, including trends in how the study group allocated capital. EY also continues to highlight the industry’s focus on sustainability and nonfinancial goals related to ESG matters, especially with the finalization of different standards and rules that will require public companies and certain other entities to make various climate-related disclosures in their annual reports.  

EY focused specifically on the SEC’s final climate-related disclosure rules, and looked at how the study group’s current voluntary reporting of climate-related information compares to the SEC’s future disclosure requirements. 

In the following sections of this article, World Oil has chosen to feature the highlights of the reserves and production findings while focusing in detail on the ESG results.  

STUDY HIGHLIGHTS 

EY says the results of operations in 2023 were brought back in line with pre-2022 results, as commodity prices retreated from their 2022 highs. Higher cash flows from record profits in 2022 enabled the studied companies to put their cash to use, as mergers and acquisitions increased, along with exploration and development activity. 

Capital expenditures, including acquisitions. Expenditures totaled $142.3 billion, 36% higher than during 2022, due primarily to an increase in merger and acquisition activity, Table 1. Acquisitions of proved and unproved property increased 71% and 14%, respectively, compared to 2022. 

Meanwhile, exploration and development expenditures increased 28% in 2023, totaling $93.1 billion, as the companies capitalized on stable commodity prices and strong historical operating results. The firms drilled 16% and 17% more development and exploration wells, respectively, compared to 2022’s figures. 

Revenues and results of operations. Revenues were $244.4 billion, down 26% from 2022, but still the second-highest revenue total for the study companies during the five-year study period. Production costs were $11.73 per boe, retreating 6% compared vs. 2022. 

Impairments totaled $2.7 billion, and have remained under $3.0 billion, each year, since 2020. Pretax profits were $83.9 billion, less than half of what the study companies reported in 2022, but in line with 2021 pretax profits. 

Capital allocation. Large independents and independents decreased payments of dividends and share repurchases by 51% ($26.8 billion) and 38% ($2.0 billion), respectively, in 2023, compared to 2022. 

Large independents and independents spent less on dividends and share repurchases as a percent of netback (revenues less production costs) in 2023 (28% and 11%, respectively), compared to 2022 (36% and 15%, respectively), reflecting the refocus on capital investment to grow production. 

Oil reserves and production. Production was 3.4 Bbbl in 2023, a 7% increase from 2022 and the highest production during the study period. Purchases of reserves were 2.2 Bbbl in 2023, a 61% increase from 2022, but still 33% lower than the record 3.4 Bbbl of purchases in 2021. The companies reported combined oil reserves of 33.3 billion Bbbl in 2023, a 1% decrease compared to 2022, Table 2. 

Gas reserves and production. Production was 16.3 Tcf in 2023, a 2% increase from 2022’s level and the highest production during the study period. Purchases of reserves were 8.4 Tcf in 2023, a 31% increase from 2022’s figure. However, this still represents only the third-highest purchases in the five-year study period. The companies reported combined gas reserves of 186 Tcf in 2023, a decrease of 4% compared to 2022, driven primarily by 12.4 Tcf of negative revisions and 5.8 Tcf of sales, Table 3. 

ESG REPORTING 

As stakeholder and regulatory demand for ESG information increases, oil and gas companies have continued to respond by increasing their voluntary ESG disclosures through sustainability reports and information on company websites. When looking at the companies studied in this year’s report, EY sees the progression over the last three years, with more companies making voluntary disclosures of certain ESG information. 

Integrateds and large independents lead the way. The integrateds and large independents in the study group continue to provide more climate-related information in their sustainability reports, relative to the independents. In 2023, 100% of the integrateds reported on the four climate-related metrics shown in Table 4. Additionally, 100% of the large independents reported their Scope 1 and Scope 2 GHG emissions and a climate-related target or goal. This is compared to only 66% and 38% of independents that disclosed Scope 1 and Scope 2 GHG emissions and reported a climate-related target or goal, respectively. 

Voluntary disclosures rise. Peer group aside, noted EY, all companies have made increases in voluntary climate-related disclosures over the last three years. Across all companies, 80% reported their Scope 1 and Scope 2 GHG emissions in 2023, compared to 72% in 2022 and 64% in 2021. Similarly, the percentage of the companies studied that obtained external assurance over their Scope 1 and Scope 2 GHG emissions has also increased, starting with 26% of all companies in 2021 and rising to 42% in 2023. Disclosures of climate-related targets and goals leveled off in 2023, relative to previous years, with 64% of the companies studied disclosing a climate-related target or goal in both 2022 and 2023. 

Over the last three years, the companies studied have consistently increased the level of assurance obtained over their Scope 1 and Scope 2 emissions. Beginning in 2021, only 22% and 4% of the studied companies obtained limited and reasonable assurance, respectively, over their Scope 1 and Scope 2 GHG emissions. Those percentages increased to 30% and 12%, respectively, of the studied companies in 2023. With certain regulators and standard setters adopting an assurance requirement as part of their final standards or rules, EY expects to continue seeing a growing percentage of the studied companies obtain assurance over their GHG emissions.  

Scope 3 GHG reporting rises. Less than half of the companies studied (42%) voluntarily reported at least one category of Scope 3 GHG emissions in 2023. However, more of the studied companies continue to disclose at least one category of their Scope 3 GHG emissions each year, as the percentage has grown from 26% in 2021 and 30% in 2022. The SEC’s finalized, climate-related disclosure rules will not require disclosure of Scope 3 GHG emissions, unlike the first set of European Sustainability Reporting Standards (ESRS), issued by the European Commission, and the climate-related disclosure requirements in the standards issued by the International Sustainability Standards Board (ISSB). EY notes that many of the companies studied also have operations outside of the U.S. and may be subject to additional rules or standards requiring climate-related disclosures. 

Defining the SEC rules further. As referenced above, certain regulators and standard setters have issued standards or rules requiring public companies and certain other entities to make various climate-related disclosures in their annual reports. The SEC adopted its climate-related disclosure rules in March 2024, to require climate-related disclosures both within and outside the audited financial statements.¹ EY included in their analysis select items that entities within the scope of the SEC’s rules will be required to disclose. 

The applicability and compliance dates of the SEC’s climate-related disclosure rules depend on a registrant’s filer status and the type of disclosure. Accordingly, for the remainder of the ESG portion of the study, EY reclassified the studied companies by filer status: large accelerated filers; accelerated filers (other than smaller reporting companies (SRCs) and emerging growth companies (EGCs); and nonaccelerated filers, SRCs and EGCs, Fig. 1. 

Fig. 1. The applicability and compliance dates of the SEC’s climate-related disclosure rules depend on a registrant’s filer status and the type of disclosure. Accordingly, EY reclassified the studied companies by filer status. Note: One company in the studied group, Enerplus Corporation, is a 40-F filer. The SEC's climate-related disclosure rules excluded 40-F filers from its scope.

The SEC rules will require accelerated and large accelerated filers to disclose Scope 1 and Scope 2 GHG emissions, if material. Non-accelerated filers, SRCs and EGCs will be exempt from providing these disclosures.  

EY found that almost all of the large, accelerated filers in the studied group (35 of 37 companies, or 95%) voluntarily reported their Scope 1 and Scope 2 GHG emissions. While accelerated filers would not be required to disclose their Scope 1 and Scope 2 GHG emissions until the fiscal year beginning in 2026 under the SEC rules, two-thirds of the accelerated filers (four of six companies, or 67%) in the studied group voluntarily reported these data in their most recently issued sustainability report. None of the nonaccelerated filers, SRCs and EGCs in the group studied reported Scope 1 and Scope 2 GHG emissions. 

Obtaining “assurance.” The SEC rules also will require accelerated and large accelerated filers to obtain, at a minimum, limited assurance over their reported Scope 1 and/or Scope 2 GHG emissions, beginning with the third fiscal year after the compliance date for emissions disclosure. Such disclosures by large, accelerated filers will subsequently be subject to reasonable assurance, beginning with the seventh fiscal year after the compliance date for emissions disclosure. Non-accelerated filers, SRCs and EGCs, all of which are exempt from disclosing material Scope 1 and/or Scope 2 emissions, will not be required to obtain assurance over those disclosures, if provided voluntarily. 

In the studied group, 54% (20 of 37 companies) of the large, accelerated filers obtained external assurance over their reported Scope 1 and Scope 2 GHG emissions. Of the 20 large, accelerated filers that obtained external assurance, 14 obtained limited assurance while six obtained reasonable assurance over their reported Scope 1 and Scope 2 GHG emissions. None of the accelerated filers that reported Scope 1 and Scope 2 GHG emissions obtained external assurance. 

Effects of disclosures on business. Related to goals and targets, the SEC rules will require registrants to provide disclosures of climate-related targets and goals that have materially affected, or are reasonably likely to materially affect, their business, results of operations or financial condition. EY found that 81% of the large, accelerated filers in the study group disclosed a climate-related target or goal in their most recently issued sustainability reports. This compares to only 17% of accelerated filers, and none of the non-accelerated filers, SRCs and EGCs in the studied group. Companies will have to determine whether the climate-related targets or goals reported in their sustainability reports have materially affected or are reasonably likely to materially affect their business, results of operations or financial condition and, if so, make the required disclosure when required.