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3 Energy Stocks Riding the Benefits of Strong Pricing

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Crude Oil prices have receded from their June 8 high of around $122, but hovering at around $94-$95, they are still at historic highs. Despite efforts to increase production and bring it more in line with demand, what is really serving as a dampener is the expectation of a recession. Still, inventories remain low and the likelihood of building significant stocks is low because of the ongoing strength in demand. Earnings results from this group of stocks therefore continue to benefit from the effects of strong pricing- 

Devon Energy (DVN - Free Report) beat the Zacks Consensus Estimate for earnings by 8.8% on revenue that beat by 17.3%.

Oil, Gas and NGL revenue (73% of total) beat analyst estimates by 9.6%, marketing and midstream (30%) beat by 29.6% and Oil, Gas and NGL derivates (-3%) by 42.3%.

Total per day production beat by 3.4%. Oil average daily production beat by around 2%, NGL average daily production beat by around 6.5% and Gas by around 3.1%. Total oil-equivalent production missed by 20.9%.

The Delaware Basin, which accounted for 79% of per day oil production and 72% of per day NGL production in the last quarter did better than analyst estimates on both counts. It is the main driver of the company’s results. Per day production of both oil and NGL in the Anadarko Basin missed analyst estimates. Eagle Ford’s per day oil production was much better than analysts were projecting, but NGL production fell short. Powder River and Other oil-producing regions also did better than analysts expected and Williston was a big disappointment.

Average price per barrel of oil exceeded analyst estimates by around 6.0% (including hedging gains it was around 6.2%). NGL prices beat by 3.7% (including hedging losses it was a miss of 1.2%). Average price per mcf of Gas beat by 5.7% (including hedging gains it was a beat of almost 13%). Analysts are modeling lower prices across the board in the current quarter, which explains the cut in earnings estimates and the dip in share prices after the earnings announcement.

Phillips 66 (PSX - Free Report) reported June quarter earnings that exceeded the Zacks Consensus Estimate by 14.4% on revenue that beat by 43.5%.

Total Marketing and Specialties (69% revenue share) beat analyst estimates by 71%. And that is why the refining miss of 55.4%, Midstream miss of 7.5% couldn’t quite offset this strength. Although only a small percentage of total revenue, the Chemicals business came in much stronger than expected. Revenue from affiliates was also significantly higher than expected.  

Refining made the largest contribution to adjusted pre-tax income and it beat analyst estimates by 11.7%. Marketing and Specialties beat by 214.5%, Midstream was 30.7% short and Chemicals was 5.1% short. The strong results in Refining were related to the strong pricing environment.

So although Worldwide Refinery production was 2.2% below expectations with all except the Gulf Coast and Atlantic disappointing, Refining margins beat analyst estimates across regions. Western/Pacific, Central/Corridor and Gulf Coast margins were the biggest surprises. Overall margin per barrel was 23.0% ahead of estimates.

Kinder Morgan’s (KMI - Free Report) second-quarter earnings matched analyst estimates although its sales were 20.1% ahead of estimates.

The sales surprise is attributable to better-than-expected results across segments with Natural Gas Pipeline revenue beating by 31.4%, Product Pipeline revenue beating by beating by 72.6%, terminals by 3.9% and CO2 by 14.9%.

Segment EBDA also beat analyst expectations. The biggest surprise was in CO2 (which beat by 7.7%), followed by Terminals (by 4.0%), Natural Gas Pipelines 0.53% and Product Pipelines 0.3%. But since Natural Gas Pipelines account for around 60% of revenue, overall earnings were in line with expectations.

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