Shale Oil Producer Stocks Drop: Devon, Diamondback Beat Estimates

Shale producers Devon Energy (DVN) and Diamondback Energy (FANG) beat earnings predictions Monday, after both companies booked losses during market trading. The stocks continued to drop in extended trading hours.

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DVN and FANG are the first of several U.S. shale oil producers that will be reporting quarterly results this week, coming on the heels of energy giants Exxon Mobil (XOM), Chevron (CVX) and Shell (SHEL) all posting record profits. Shale oil producer stocks fell broadly on Monday as crude oil prices also dropped sharply.

Shale Oil Producer Stocks: Devon Energy Earnings

Estimates: FactSet analysts projected earnings for Devon Energy to skyrocket 285% year over year to $2.31 per share and sales to surge 72% to $4.1 billion for the second quarter.

Results: Devon Energy reported earning $2.59 per share, a 331% increase year over year. Revenue grew 133% to $5.6 billion.

Based on its second quarter performance, DVN increased its full year production guidance by 3% to a range of 600,000- 610,000 oil-equivalent barrels per day. Devon Energy also adjusted its upstream capital guidance to between $2.2-$2.4 billion, up from $2.1 billion.

“This success was showcased by production from our Delaware-focused program that exceeded guidance expectations, our streamlined cost structure captured the full benefit of higher commodity prices and we returned record-setting amounts of cash to shareholders,” CEO Rick Muncrief said in a news release.

Production for the second quarter averaged 616,000 oil-equivalent barrels per day, an increase of 7% from Q1. Upstream capital spending was 5% below the company’s expectations, totaling $513 million.

Devon Energy expects capital spending in Q3 to total between $680-$755 million.

DVN shares fell 2% to $61.59 on the stock market Monday. Devon Energy has started to work its way higher after finding support at the 200-day line. DVN stock is still below its 50-day line, according to MarketSmith.

The Oklahoma City-based Devon Energy is a leading onshore U.S. oil and gas producer. It operates in multiple basins across the country, including the resource-rich Delaware Basin in West Texas and the Barnett Shale, one of the largest onshore natural gas fields in the U.S.

The company ranks third in the Oil & Gas-U.S. Exploration and Production industry group. DVN has a Composite Rating of 99. It has a 98 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share-price movement with a 1 to 99 score. The rating shows how a stock’s performance over the last 52 weeks holds up against all the other stocks in IBD’s database. The stock has an EPS Rating of 80.

Diamondback Energy Earnings

Estimates: Wall Street projected Diamondback Energy earnings per share of $6.68, a 179% increase over the year-ago quarter, and a 48% rise in sales to $2.5 billion.

Earnings: Earnings per share increased 194% to $7.07. Revenue climbed 59% to $2.7 billion.

Capital spending on operating and non-operating drilling in Q2 was $468 million. So far in 2022, Diamondback Energy capital expenditures have come to $905 million. The company is projecting another $470-$510 million in spending in the third quarter.

“We continue to focus on operational excellence and cost control in this inflationary operating environment, working to mitigate and offset the persistent inflationary pressures we are seeing across our business. Diamondback has a strong track record of cost control, and we expect to continue to improve on this track record in the coming quarters,” CEO Travis Stice said in a statement.

FANG stock dropped 1.7% to 125.83 on Monday. Shares are attempting to get above their 200-day line. The stock is in the midst of a consolidation and currently 16% below its official 148.09 buy point, according to MarketSmith analysis.

Diamondback Energy ranks fifth in the Oil & Gas-U.S. Exploration and Production industry group. FANG has a 99 Composite Rating. It has a 94 Relative Strength Rating and an EPS Rating of 94.

In Q1, Diamondback reportedly turned aggressive, operating 12 rigs in the Permian Basin. However, well completion services, materials and labor are increasingly expensive and difficult to procure, and much of the drilling has gone to simply holding output levels steady.

“Everything is tight across the board, whether it’s sand, casing, new high-spec rigs, frack crews — everything is very, very tight,” CFO Kaes Van’t Hof said during the company’s Q1 earnings call in May. “We’re doing our part by keeping our activity levels flat.”

Spiking oil prices have made holding production steady a winning strategy. Analysts project Diamondback earnings for all of 2022 will rise 126% to $25.50 a share on a 41% sales increase to $9.6 billion.

More Earnings On The Horizon

Five Leaderboard stocks will be announcing earnings this week. After Devon Energy and Diamondback Energy, Occidental Petroleum (OXY) will release second-quarter results Tuesday. On Thursday morning, EOG Resources (EOG) releases earnings.

Marathon Petroleum (MPC) and Pioneer Natural Resources (PXD) also report Tuesday. Marathon Oil (MRO), SM Energy (SM) and APA (APA) will report Q2 earnings Wednesday after the market closes.

Shale oil producer stocks were mostly down ahead of earnings Monday. U.S. crude oil prices also extended losses, settling down 4.6% to $94 a barrel. U.S. natural gas futures followed the trend, losing 4% Monday before cutting losses. The price of gasoline at the pump Monday was on average $4.21, according to AAA data.

U.S. shale producers are expected to report strong second-quarter profits, with Bloomberg forecasting 28 major companies will make more than $100 billion in free cash flow in 2022.

Flat Production, Spiking Capital Spending

However, while many oil and gas producers are seeing strong profits in 2022, inflation and supply-chain snags have resulted in increased capital spending even as many of them are keeping production flat.

The U.S. Energy Information Administration shows oil and gas companies downshifted both spending and production for the second quarter.

An EIA scan of 53 public U.S. oil and gas companies, collectively responsible for about 34% of domestic production, showed that combined cash flows increased 86% to $25.7 billion during the first quarter. Meanwhile, capital spending nearly doubled vs. 2021. These same companies reported a 5% decline in capital expenditures in the second quarter vs. Q1 this year. Crude oil production has increased 10% compared with the first quarter, but it remains flat vs. Q4 2021.

The EIA found that while the price of crude oil has increased, supply-chain issues and production expenses continue to pressure the energy sector. The costs of supplies and labor for oil production have more than doubled from the pre-pandemic average, according to the EIA.

Oilfield service firms Schlumberger (SLB) and Halliburton (HAL) both reported capital spending increases in Q2.

OPEC+ Meets This Week

Amid earnings this week, the Organization of the Petroleum Exporting Countries along with its allies (including Russia), known as OPEC +, will be meeting Wednesday. The oil cartel will discuss production quotas for September. The gathering comes as the White House has called for a supply increase in an attempt to stabilize the oil market.

The price of crude oil has angled sharply in 2022, reaching $130 per barrel in February, after Russia invaded Ukraine. Recently, inflation and fears of a demand-sapping recession have brought prices down somewhat. In early June, OPEC+ decided to increase output by 648,000 barrels per day for July and August, up from the previous quota of 432,000 bpd.

Shale Oil Producer Stocks: Occidental Petroleum

Estimates: Analysts are forecasting earnings of $3.03 per share vs. 32 cents in the year-ago quarter. Revenue is expected at $9.8 billion, a 64% increase.

Results: Occidental Petroleum is announcing Q2 results Tuesday after the market closes.

Shares fell cut losses ending Monday down 0.8%, trading at 65.22. Occidental moved nicely above its 50-day moving average Friday, helped by strong earnings reports from Exxon Mobil and Chevron. OXY has generally held up better than many other energy stocks as it battles for support at its 50-day line.

In July, Warren Buffett’s Berkshire Hathaway (BRKA) bought an additional 12 million shares of OXY stock, bringing its stake to nearly 20%. Like many other oil and gas producers, Occidental has showed booming revenue growth in recent quarters.

In the first quarter, revenue jumped 56% to just over $8.5 billion, a slight slowdown from triple-digit year-over-year growth in the prior three quarters. Broken down by segment, oil and gas revenue jumped 66% to just over $6 billion. Chemical revenue increased 55% to $1.68 billion.

The Houston-based Occidental ranks first in the Oil & Gas-Exploration and Production industry group. OXY stock has a Composite Rating of 99. Its Relative Strength Rating is a best-possible 99. Its EPS Rating is 77.

Marathon Petroleum Earnings

Estimates: Analysts forecast second-quarter EPS 0f $8.92 vs. 67 cents in the same quarter last year, and $40.3 billion in sales, a 35% jump.

Earnings: The announcement is expected Tuesday morning.

Marathon Petroleum shares were down 1.37% to 90.4 on Monday. The stock has moved above its 200-day average but is meeting resistance at its 50-day line. MPC is in the midst of consolidation with a buy point of 114.45.

The Ohio-based MPC primarily focuses on downstream production and operates the largest refining system in the U.S. The company also is the majority owner of MPLX (MPLX), which is a midstream company involved in natural gas and crude oil production.

Marathon Petroleum ranks eighth in the Oil & Gas-Refining, Marketing and Transportation industry group. MPC has a 93 Composite Rating. Its Relative Strength Rating is 96 and EPS Rating is 77.

Shale Oil Producer Stocks: Pioneer Natural Resources

Estimates: Wall Street is expecting earnings per share of $8.82, a 246% year-over-year surge, while sales are seen more than doubling to $7 billion.

Earnings: Check Tuesday afternoon.

Shares sank 3.7% to 228.17 on Monday. PXD stock is currently around 18% below a 288.56 buy point. Shares are in the midst of a second-stage consolidation.

Pioneer Natural Resources ranks 10th in the Oil & Gas-U.S.-Exploration and Production industry group. PXD has a 99 Composite Rating. Its Relative Strength Rating is 95, and it has a 99 EPS Rating.

PXD is one of the top five U.S. oil producers and the leading oil producer for 2021 in the Permian basin production area, according to the Railroad Commission of Texas.

Profit growth moved higher in Q1. Earnings were up 337%, compared with 328% in the prior report. Analysts expect earnings growth of 150% for the full year.

While the EIA estimates U.S. crude oil production will approach on average 11.9 million barrels per day for all of 2022, an average increase of 700,000 barrels a day vs. 2021, Pioneer CEO Scott Sheffield warned investors in May that they should expect much less production.

“The growth profile that EIA has, and some of the other think-tank firms, I think it’s too aggressive over the next two years for U.S. oil production,” Sheffield said during the first-quarter earnings call.

Sheffield estimated this year’s overall U.S. oil output will rise in a range of 500,000 barrels per day to 600,000 bpd.

At that time, PXD also anticipated its own oil output to increase by no more than 5% this year.

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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