It was a week where oil prices experienced further correction but natural gas futures ended up.

On the news front, energy biggies Occidental Petroleum Corporation (OXY Quick QuoteOXY - Free Report) and Cheniere Energy, Inc. (LNG Quick QuoteLNG - Free Report) came up with weak earnings reports, while independent producer Apache Corporation (APA Quick QuoteAPA - Free Report) inked a $3.5 billion midstream agreement.  

Overall, it was another mixed week for the sector. While West Texas Intermediate (WTI) crude futures fell around 1.3% to close at $67.63 per barrel, natural gas prices were up 3.2% to $2.944 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: BP, Apache & Concho's Q2)

The U.S. crude benchmark slipped for the fifth time in six weeks on growing concerns about demand growth amid escalating trade conflict between the world’s biggest oil consumers - the United States and China. The U.S. Energy Department's inventory release showing a lower-than-expected weekly drawdown in crude stockpiles also pressured oil futures.

Meanwhile, natural gas prices moved higher last week as storage levels continue to remain well below benchmarks. At 2.354 trillion cubic feet (Tcf), current natural gas inventories are 572 Bcf (19.5%) under the five-year average and 671 Bcf (22.2%) below the year-ago figure.

Recap of the Week’s Most Important Stories

1.    Houston-based energy explorer Occidental Petroleum reported second-quarter 2018 earnings of $1.10 per share, missing the Zacks Consensus Estimate of $1.25 by 12%. The company’s underperformance was owing to lower than expected worldwide sales volume.

Occidental Petroleum’s average daily net oil, liquids and gas production volume increased to 639,000 barrels of oil equivalents per day (BOE/d) from 601,000 boe/d reported in the year-ago quarter. Overall volumes were below the Zacks Consensus Estimate of 646,000 BOE/d. Realized prices for crude oil in the second quarter rose 35.6% year over year to $63.12 per barrel worldwide, while realized NGL prices increased 44%.

Occidental Petroleum expects third-quarter production to be in the range of 665,000-687,000 boe/d and Permian Resources production within 215,000-225,000 BOE/d. The company estimates 2018 production between 650,000 and 664,000 boe/d, up from the prior forecast of 645,000-665,000 BOE/d. Occidental Petroleum envisions 2018 Permian Resources production in the range of 207,000-215,000 BOE/d, up from the previous guidance of 198,000-210,000 BOE/d. (Read more Occidental Q2 Earnings Miss Estimates, Revenues Beat)

2.    U.S. gas exporter Cheniere Energy reported second-quarter 2018 net loss per share of 7 cents against the Zacks Consensus Estimate of profit of 32 cents. The weaker-than-expected results can be attributed to lower-than-anticipated revenues and high costs incurred during the quarter. The company failed to pull off a hat-trick of earnings beat owing to the dismal results. However, the reported loss narrowed from the year ago quarter’s net loss of $1.23 on the back of increased operations from the additional trains in the Sabine Pass project.

During the quarter, the company shipped 61 cargoes from the Sabine Pass liquefied natural gas terminal in Louisiana, reflecting an increase of 27%. Total volumes of LNG exported in the reported quarter were 219 trillion British thermal units (TBtu) compared with 170 TBtu in the year-ago quarter. 

Cheniere Energy reaffirmed its EBITDA guidance for full-year 2018 and raised the lower end of the distributable guided range. Adjusted EBITDA is expected between $2,300 million and $2,500 million. Distributable cash flow is projected between $400 million and $550 million, up from the prior guided range of $350-$550 million.

3.    U.S. energy firm Apache Corporation recently entered into a partnership deal with Kayne Anderson Acquisition Corporation for the creation of a pure-play Permian Basin midstream firm in Texas.

Apache will own 71% stake, expandable to 74% subject to performance earn-outs, in the new entity named Altus Midstream Company. The Houston-based publicly-traded new entity is likely to have a market capitalization of $3.5 billion, based on the assumed sale of 354.4 million shares at $10 per share.

The deal holds much significance for Apache, as Alpine High, in the Permian Basin, has been the most important discovery of the company in the recent times. Estimated to hold massive oil/natural gas reserves, Alpine High is viewed as a game changer that is expected to generate top-tier returns for the company. In fact, it delivered better-than expected results in the last reported quarter on the back of high Permian volumes. The overall natural gas volumes are likely to exceed 1 billion cubic feet (Bcf) per day, churning out roughly 100,000 barrels NGLs on a daily basis by the end of the decade. (Read more Apache Partners With Kayne Anderson for $3.5B Midstream Firm)

4.    Diamondback Energy, Inc. (FANG Quick QuoteFANG - Free Report) reported mixed second-quarter 2018 results, with earnings lagging the Zacks Consensus Estimate while revenues surpassing the same.

The company reported adjusted net earnings per share of $1.59, missing the Zacks Consensus Estimate of $1.64. The weaker-than-anticipated earnings can be attributed to lower-than-expected natural gas price realizations along with increase in total costs. The company fetched $1.54 per thousand cubic feet (Mcf) for realized natural gas prices, missing the Zacks Consensus Estimate of $1.92 per Mcf. Notably, operating expenses per barrel of oil equivalent increased to $8.83, reflecting a 15.3% rise from the year-ago level of $7.66.

Alongside its earnings release, Diamondback announced that it has inked a cash and stock deal with a private-equity backed player Ajax Resources LLC, in a bid to further sharpen its focus on the prolific Permian play. The deal will add around 25,493 net leasehold acres to Diamondback’s portfolio. The to-be-acquired acres in the Northern Midland Basin has a production capacity of around 12,100 Boe/d (88% oil). Diamondback will buy the Houston-based Permian focused player for $900 million in cash and around $300 million in stock. Subject to satisfactory closing conditions and regulatory approvals, the deal is scheduled for closure by the end of October. (Read Diamondback Lags on Q2 Earnings, to Buy Ajax for $1.2B)

5.    Permian Basin-focused energy explorer Energen Corporation announced reported second-quarter 2018 adjusted earnings from continuing earnings of 77 cents per share, beating the Zacks Consensus Estimate of 75 cents and improving from the prior-year quarter’s 6 cents. The strong second-quarter results were supported by the surge in oil equivalent production and crude price realization.

Total production volumes for the April-to-June quarter of 2018 increased to 8,862 thousand barrels of oil equivalent (MBOE) from 6,596 MBOE in the prior-year quarter, courtesy of strong well operations as more wells in the Midland and Delaware basins came online. Of the total volume, oil accounts for 58.3%. Average realized price for oil jumped from $44.54 a barrel in second-quarter 2017 to $61.21.

Through 2018, Energen expects daily production to lie between 97 and 104 thousand barrels of oil equivalent (MBOE/D), up 5% from the mid-point of the company’s earlier projection. With the new guidance mid-point, the growth in production over 2018 will likely be 32%. The consistent record performances by the operating wells primarily attributed to the growth. (Read more Energen Q2 Earnings Beat, 2018 Production View Up)

Price Performance

The following table shows the price movement of some the major oil and gas players over the past week and during the last 6 months.

The Energy Select Sector SPDR – a popular way to track energy companies was essentially unchanged last week. But longer-term, over six months, the sector tracker is up 8.6%. Large independent producer ConocoPhillips (COP Quick QuoteCOP - Free Report) is far and away the major gainer during this period, experiencing a 30.3% price appreciation.

What’s Next in the Energy World?

With the 2018 Q2 earnings season over, market participants will get back to closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas – one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.     

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.  

See the pot trades we're targeting>>