We already have results from 48.3% of the oil energy stocks belonging to the S&P 500 Index, giving us a fair idea of how the fourth-quarter 2019 earnings season has fared so far. Although total earnings of the reported energy players plunged 47.9% year over year, 57.1% of the companies beat EPS estimates, thanks to favorable oil prices. This data is as of Feb 12.
Q4 Oil & Gas Pricing Scenario
Favourable Oil Price
Per data provided by the U.S. Energy Information Administration (EIA), the average West Texas intermediate (WTI) crude prices in October, November and December were recorded at $53.96 per barrel, $57.03 per barrel and $59.88 per barrel, respectively. In comparison, in the year-ago respective months, average oil prices were reported at $70.75 per barrel, $56.96 per barrel and $49.52 per barrel, per the EIA’s data.
Thus, although in the first month of fourth-quarter 2019, average crude price was weaker year over year, the commodity’s pricing environment was healthier in the last two months. Improving global energy demand expectations, following easing trade tensions between the United States and China, primarily supported oil prices in the December-end quarter. The agreement by the OPEC and non-OPEC allies, often referred to as OPEC+, to deepen oil production cut by an additional 500,000 barrels per day (Bbl/D) also backed the crude rally.
Weaker Natural Gas Price
The pricing environment of natural gas was weaker in the fourth quarter of 2019 as compared with the year-ago period. Per the EIA’s data, the average price of the commodity in October, November and December was recorded at $2.33 per million Btu, $2.65 per million Btu and $2.22 per million Btu, respectively. In the respective months of 2018, the commodity’s average price was recorded higher at $3.28 per million Btu, $4.09 per million Btu and $4.04 per million Btu, respectively, according to the EIA.
Lower-than-expected demand amid plentiful production volumes was mainly responsible for the commodity’s weaker pricing scenario in the October-December quarter.
Commodity Prices’ Impact on Energy Players
The fate of almost all the energy firms is correlated to oil and gas prices. The exploration and production players that primarily produce oil are likely to have benefited from favourable prices. Despite the rise in oil price in the fourth quarter, explorers’ conservative capital spending slowed down their production growth. Notably, drilling activities in the U.S. resources significantly slowed down, as reported by the Baker Hughes Company’s BKR rig count data.
How to Pick the Right Stocks?
Amid a large number of energy stocks, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver better-than-expected earnings.
While there is no fool-proof method of picking outperformers, our proprietary methodology — the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — helps identify stocks that have high chances of delivering a positive surprise in their upcoming earnings announcement. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
The Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Based in Houston, TX, Apache Corporation APA is a leading upstream energy player with strong presence in the United States, Egypt and the U.K. Oil contributes majority of the company’s production volumes.
The firm has an Earnings ESP of +27.42% and currently carries a Zacks Rank #3. It is scheduled to release earnings on Feb 26, after the closing bell.
EOG Resources, Inc. EOG, headquartered in Houston, TX, is among the leading exploration and production players with operations in the United States, Trinidad and China. Crude oil and condensate volumes contribute majority of the company’s production.
This upstream energy player has an Earnings ESP of +0.18% and carries a Zacks Rank of 3, at present. It is set to release earnings on Feb 27, after the closing bell.
Based in Oklahoma City, Devon Energy Corp. DVN is a leading upstream firm with presence in some of the prolific U.S. resources. Notably, oil contributes significantly to the company’s production volumes.
The explorer has an Earnings ESP of +0.06% and holds a Zacks Rank #2, currently. It is slated to release earnings on Feb 18, after the closing bell.
Centennial Resource Development, Inc. CDEV, headquartered in Denver, CO, is a leading upstream energy firm with presence in Permian — the most prolific basin in the United States. Crude oil contributes majority of the company’s production.
The company has an Earnings ESP of +14.87% and currently carries a Zacks Rank of 3. It is scheduled to release earnings on Feb 24, after the closing bell.
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