We have reached the final stretch of the Q2 earnings season, with results on board from 317 S&P 500 members that combined account for almost 75% of the index’s total market capitalization. Total earnings for these companies are down 3.3% from the same period last year on 0.9% lower revenues, with 72.9% positive earnings surprises and 53.6% beating revenue estimates. (Data from the Earnings Trends report dated July 29, 2016).

Energy Remains the Biggest Drag

Expectedly, the ‘Energy’ sector has been a big drag on the aggregate growth picture. For the sector components on the S&P 500 index that have reported Q2 results, total earnings are down 76.5% on 24.6% lower revenues. Though 66.7% of the companies outperformed earnings estimates, the positive surprises have undoubtedly been aided by easy-to-beat estimates. In fact, we have seen sub-standard reports from a number of major players in the sector, like Exxon Mobil Corp. (XOM Quick QuoteXOM - Free Report) and Royal Dutch Shell plc .

E&P Companies are the Hardest Hit

While all crude-focused stocks stand to lose from falling commodity prices, companies in the exploration and production (E&P) sector are the worst placed, as they are extracting less value for their products. Consequently, with oil prices recently collapsing to their lowest levels in years, upstream firms have seen their revenues, earnings and cash flows being hit hard.

Moreover, with no refining business to help neutralize low oil prices, these companies have suffered the most. As oil sales floundered, producers generated lesser revenues. To survive the period of weak profits, they took more debt. Some of them – especially the smaller and the more speculative ones with the most leverage – now face an existential crisis, while for the others the time bomb is ticking with crude prices stuck below $50 a barrel.

While mid- and large-sized energy producers are in a better position to weather the storm due to better financial flexibility, they still face declining profits and in some cases – widening losses.

Oil Exploration Stocks to Watch for Earnings on Aug 2

Let’s see what’s in store for five such companies expected to come up with second-quarter numbers on Tuesday, Aug 2. Let’s take a look at how things are shaping up at their end.

Devon Energy Corp. (DVN Quick QuoteDVN - Free Report) is expected to report results after the closing bell. In the first quarter of 2016, this Oklahoma City, OK-headquartered large-cap energy explorer – with operations concentrated in the onshore areas of North America, including the U.S. and Canada – reported better-than-expected numbers on the back of cost saving initiatives undertaken by the company. Moreover, the company has an excellent track of earnings surprises, having beaten estimates in each of the last four quarters at an average rate of 27.89%. Our proven model shows that Devon Energy is likely to beat estimates in the second quarter as well because it has the right combination of two key ingredients.

A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat earnings. Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

For the quarter to be reported, Devon Energy Mobil has an Earnings ESP of +4.55%, while it carries a Zacks Rank #2. The combination makes us reasonably confident of an earnings beat this season. (Read more: Devon Energy Likely to Beat Estimates in Q2 Earnings)

Headquartered in Midland, TX, Concho Resources Inc. is also set to report second-quarter 2016 results after the closing bell. Coming to the earnings surprise history, the Permian Basin-focused upstream player has a poor track, having missed estimates in the last two quarters.

Estimates have been rising lately prior to Concho Resources’ second-quarter earnings release. The Zacks Consensus Estimate of 3 cents jumped 400% over the past 60 days. Concho Resources carries a Zacks Rank #2 and has an Earnings ESP of +33.33%, again making it a prime candidate for an earnings beat.

Antero Resources Corp. (AR Quick QuoteAR - Free Report) is another oil and gas finder to report second-quarter results tomorrow – again after the market closes. Notwithstanding the crude collapse, the company outperformed the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive surprise of 210.42%.

Our quantitative model hints at another earnings beat for this Denver, CO-based company – primarily looking for oil and gas in West Virginia’s Appalachian Basin in – as it has a Zacks Rank #2 and an Earnings ESP of +400.00%.

Cobalt International Energy Inc. , a Houston, TX-based independent, oil-focused exploration and production company, will release second-quarter results before the opening bell.

Our model does not indicate that Cobalt International is likely to beat on earnings this time around. This is because it is a Zacks Rank #3 stock but has an Earnings ESP of 0.00%. However, the company has a good track of earnings surprises, having beaten estimates in all but one of the last four quarters.

Finally, we have independent natural gas producer EXCO Resources Inc. coming up with second-quarter numbers after market close.

In the preceding three-month period, the Dallas, TX-based upstream player delivered a positive earnings surprise of 36.36% despite the challenges that a steep drop in oil price tagged along. This was primarily owing to strong cost control measures.

As far as the earnings surprise history is concerned, the company has an excellent record: it surpassed estimates in each of the last four quarters, with an average beat of 35.43%.

But we do not expect EXCO Resources to beat earnings expectations as our proven model shows that it does not have the right combination the two key components. While a Zacks Rank #2 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult. (Read more: What to Expect from EXCO Resources' Q2 Earnings?)

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