3 Oil & Gas E&Ps for Q2 Earnings Beats
The prospects of the energy industry, the Exploration and
Production (E&P) sector in particular, are largely tied to the
related commodities. The oil/natural gas-focused stocks thus stand
to benefit from the recent momentum in their prices.
During the last few months, crude prices have mostly traded over
$100 per barrel range. Most importantly, in June, the West Texas
Intermediate (WTI) crude crossed the $106 threshold for the first
time since Sep 2013, as tensions over Iraq continued to feed supply
concerns in the Middle East. (Read our full coverage on the Iraq
Crude Rallies on Iraq Conflict: Oil Stocks in
Meanwhile, natural gas price also showed improvement. After
hovering near the $3.5 per million British thermal unit level for
most of 2013, natural gas traded over the $4.5 threshold during the
entire second quarter. A markedly lower natural gas inventory level
- less than the 5-year average underground storage level as per the
Energy Information Administration (EIA) - during the last three
months aided the price rise. Also, increased natural gas
consumption for electricity generation acted as a
The healthy pricing environment will allow the E&P companies to
extract more value for their products. We are now in the
initial days of the Q2 earnings season and the sector is most
likely to offer good investment opportunities with the upcoming
Picking the Right Stocks
With a wide array of companies in the sector muddling up the stock
picking power, the Zacks methodology could offer some relief. One
could narrow down the list using positive Zacks
as a guide, along with a favorable Zacks Rank #1 (Strong Buy), 2
(Buy) or 3 (Hold).
Earnings ESP is our proprietary methodology for identifying stocks
that have high chances of surprising in their next earnings
announcement. It shows the percentage difference between the Most
Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the
chance of a positive earnings surprise is as high as 70%.
Here are three E&P stocks that are poised to beat estimates
according to our methodology:
Clayton Williams Energy Inc.
): Midland, TX-based Clayton Williams Energy is primarily involved
in E&P of oil and natural gas resources located in Texas,
Louisiana, and New Mexico. The company's total proved reserve as of
Dec 31, 2013, was roughly 70 million barrels of oil equivalent
The company has an earnings ESP of +4.97% and a Zacks Rank #1. The
Zacks Consensus Estimate for the to-be-reported is pegged at $1.41
Clayton Williams Energy is set to report its second quarter results
on Jul 24, before the opening bell.
Noble Energy Inc.
): Headquartered in Houston, TX, Noble Energy is an oil and gas
E&P company, engaged in the upstream operations globally. The
total proved reserve of the company as of Dec 31, 2013 was 1,406
Noble Energy's second quarter prospect looks bright as it has an
earnings ESP of + 1.28% and a Zacks Rank #3. The Zacks Consensus
Estimate is 78 cents per share.
The company is set to report its second-quarter results on Jul 24,
before the opening bell.
): Calgary, Alberta based Encana is a focused pure-play natural gas
E&P company. It is the second largest gas producer in North
America, and holds a highly competitive land and resource position
in a number of the region's most promising shale and tight gas
resource plays. This provides the company with a low risk,
long-life, and sustainable growth profile. As of year-end 2013,
Encana had 10.0 trillion cubic feet equivalent in proved reserves,
of which roughly 86% was natural gas.
For the upcoming release, Encana has an earnings ESP of + 11.11%
and a Zacks Rank #3.
Encana - which has a Zacks Consensus Estimate of 27 cents for the
second quarter - will release its results on Jul 24, prior to the
Although the oil and natural gas E&P companies are exposed to
volatile commodity prices, we can say that the firms involved in
upstream operations have a high chance of coming up with flying
second quarter earnings.
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