Markets are a little more than halfway through the Q2 earnings season, with 57.2% S&P 500 members having reported results as of Friday, Apr 28.

Picture Emerging Thus Far

We now have Q2 results from 286 S&P 500 members that combined account for 68.8% of the index’s total market capitalization. According to the latest Earnings Preview, total earnings for these companies are up 11.3 from the same period last year on 6.1% higher revenues, with 74.5% positive earnings surprises and 69.2% beating revenue estimates.

Energy Earnings Soar

The ‘Energy’ sector has been off to a spectacular start. For the 48.5% sector components on the S&P 500 index that have reported Q2 results, total earnings surged 226.2% on 15.5% higher revenues. While 50% of the companies have been successful in beating earnings estimates, 81.3% outperformed the top line.

Energy: First Half Recap

Last year, 'Energy' was the strongest S&P sector performer, with market-thumping 24% returns. In particular, November's historic OPEC-led production cut deal to alleviate a supply glut managed to buoy oil prices and stabilize them around the psychologically important $50 per barrel threshold. The commodity was on a stellar run on optimism surrounding the agreement, and the outlook for oil stocks was getting better.

The seemingly positive developments encouraged investors to bet on firming prices for 2017, with the oil industry finally hoping that 'this would be the year.' True to the strong sentiments, U.S. oil prices reached around $55 per barrel in late February, the highest level in 19 months.

However, the situation is drastically different now, with the commodity floundering in recent weeks. By Jun 21, crude had cratered more than 20% from its February highs and officially plunged into the bear territory. In fact, prices ended down 14.3% for the first half of the year – the worst performance since 1998.

Let's take a look at how oil and gas prices behaved during the second quarter of this year.

Strong Q2 Earnings Growth Prediction

A look back at the Q1 earnings season reflects that the overall results of the Oil/Energy sector were spectacular, driving the aggregate growth picture for the S&P 500 Index.

The Jan-Mar 2017 period turned out to be a rather good one with both oil and natural gas prices benefiting from easier comparison with the year-ago period. While crude slumped to some 12-year low in the first quarter of 2016, natural gas futures dropped to the worst level in almost 17 years.

As a result, the sector – whose year-earlier comparison was to an aggregate loss – came out swinging. For the sector components on the S&P 500 Index, total Q1 earnings had very strong year-over-year dollar growth on 33.8% higher revenues. While 69.7% of the companies were successful in beating earnings estimates, 63.6% outperformed the top line.

The picture looks rather encouraging for the Q2 earnings season as well. This is not surprising, considering that oil and gas are both averaging higher compared to the second quarter of 2016 when the energy companies reported unusually low bottom line. While earnings for the Oil/Energy sector are set to jump a massive 249.0% – the highest year-over-year growth among all sectors – the top line is likely to show an improvement of 16.5% from the second-quarter 2016 levels.

Stocks to Watch for Earnings on Aug 3

Let’s see what’s in store for four energy companies expected to come up with June-quarter numbers on Thursday, Aug 3.

First, we have domestic energy explorer Apache Corp. (APA Quick QuoteAPA - Free Report) , which is expected to report before the opening bell. In the previous quarter, this Houston, TX-headquartered upstream oil and gas player missed estimates, weighed down by a dip in output due to a conservative capital budget over the past two years.

Regarding earnings surprises, Apache is on a bit of a slippery surface, having missed the Zacks Consensus Estimate in three of the last four reports. And our model indicates that the company is unlikely to beat on earnings this time around too.

This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

For the quarter to be reported, Apache has an Earnings ESP of +200.00%. A positive ESP serves as a meaningful indicator of a likely positive earnings surprise. However, Apache currently carries a Zacks Rank #5 (Strong Sell), which makes surprise prediction difficult. (Read more: What's in the Offing for Apache this Earnings Season?)

As it is, we caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Headquartered in Oklahoma City, OK, Chesapeake Energy Corp. (CHK Quick QuoteCHK - Free Report) is also set to report second-quarter 2017 results – before the opening bell. The company – engaged in the acquisition, development, and production of onshore U.S. natural gas resources – has a good track of outperforming estimates in three of the last four quarters.

Powered with the right combination of the two key ingredients – an Earnings ESP of +7.14% and a Zacks Rank #3 – our proven model shows that an earnings beat is expected for Chesapeake Energy in the to-be-reported quarter as well. (Read more: Chesapeake Q2 Earnings: Another Beat in the Cards?)

You can see the complete list of today’s Zacks #1 Rank stocks here.

Then there is Calgary, Alberta-based Canadian Natural Resources Ltd. (CNQ Quick QuoteCNQ - Free Report) coming up with April-June operational results tomorrow morning.

As far as earnings surprises are concerned, Canadian Natural Resources – one of the largest independent exploration and production companies in the country, with extensive heavy crude oil and natural gas developments – has a decent history. It went past the Zacks Consensus Estimate twice in the last four reports.

And, with an Earnings ESP of +19.05% and a Zacks Rank #3, an earnings beat is possible for Canadian Natural Resources in the upcoming quarterly release too. (Read more: Canadian Natural Resources Q2 Earnings: Beat in Store?)

Lastly, we have Southwestern Energy Co. (SWN Quick QuoteSWN - Free Report) reporting second-quarter 2017 results – this time after the closing bell. Coming to the earnings surprise history, this Spring, TX-headquartered energy explorer – with producing properties mainly in the Arkansas side of the Arkoma Basin, as well as in Oklahoma, Texas and Pennsylvania – has been on a mixed run: it went past estimates in two of the last four quarters.

But our model does not indicate that Precision Drilling is likely to beat on earnings this time around, as it has a Zacks Rank #4 and an Earnings ESP of 0.00%. (Read more: Southwestern Energy Q2 Earnings: What's in the Cards?)

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