Q1 E&P results - key earnings drivers and guidance commentary
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US exploration and production stocks have seen strong performance year to date, led by ~100% rallies in Occidental (OXY) and Kosmos (KOS). The commodity environment has improved significantly, with oil (CL1:COM) up ~35% and henry hub gas (NG1:COM) up ~80% in 2022. The business model has also improved. After a near decade of overspending cash flows to grow production, E&P management teams have almost uniformly pivoted to a more shareholder-friendly capital allocation model. As Q1 results near, investors are sure to focus on a few key drivers of earnings and outlooks:

Supply chain - mining operations have been hit by supply chain challenges, and the market has responded harshly to lowered volume guidance (FCX) (AA); though E&Ps have largely guided the Street to modest production growth, outliers like Matador (MTDR) and Hess (HES) could see supply chain challenges restrict US onshore production plans.
Costs - Haliburton (HAL), Baker (BKR) and Schlumberger (SLB) have all reported, citing tight service capacity and increased pricing power; it's likely too soon for E&P management teams to change capital spending guidance, though comments on service cost inflation are sure to capture the market's attention.
DUCs - Though weekly DOE data has shown flat US onshore production year to date, monthly drilling productivity reports have revealed rapidly falling well inventory; Exxon (XOM) has been flagged as drawing down DUCs, though the industry broadly will need to address the challenge of rebuilding well inventory at some point in 2022.
Policy - since war began in Ukraine, E&P management teams and Washington have mostly pointed fingers rather than working together to increase US oil production; however, Pioneer's (PXD) CEO has called for a coordinated effort from Washington, while the White House has released additional federal lands for drilling -- policy-related comments are likely to capture headlines throughout earnings season, and provide clarity on the path forward for US production.

US oil patch economics are stronger than they've been in at least a decade. Rising commodity prices and an increasingly shareholder friendly business model have been rewarded by the market year to date. However, there are several tertiary challenges for management teams to navigate throughout the Q1 earnings season.