The earnings season is now drawing to a close, with 85% of S&P 500 companies having returned their Q3 2022 scorecards. According to FactSet Earnings Insights, the Energy sector is reporting the highest earnings growth of any market sector at 134%. All five sub-industries in the Energy sector are reporting year-over-year earnings growth for the third-quarter, with Oil & Gas Refining & Marketing (269%), Integrated Oil & Gas (140%), Oil & Gas Exploration & Production (105%), and Oil & Gas Equipment & Services (91%) reporting the highest earnings growth.
The oil supermajors have been outstanding so far this year, and Q3 2022 has not been an exception with leaders Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) posting a combined $31B in quarterly profits. Indeed, the sector’s record earnings have drawn the ire of President Joe Biden and other Democrats and prompted calls for a windfall tax.
But bumper profits have not been the sole preserve of Big Oil companies with smaller independent oil and gas companies posting impressive results, too. Here’s how these five smaller energy companies have performed during the ongoing earnings season.
#1. Northern Oil and Gas
Market Cap: $2.8B
YTD Returns: 64.3%
Minnetonka, Minnesota-based Northern Oil and Gas Inc. (NYSE: NOG) is an independent energy company that engages in the acquisition, exploration, exploitation, development, and production of crude oil and natural gas properties in the United States.
Northern Oil & Gas posted impressive Q3 revenue of $791.64M (+502.0% Y/Y), beating the Wall Street consensus by $374.37M while Q3 Non-GAAP EPS of $1.80 beat by $0.05. Third quarter cash flow from operations was $269.3 million, an increase of 7% sequentially from the second quarter of 2022. NOG also reported record quarterly production of 79,123 Boe per day (57% oil), an increase of 37% from the third quarter of 2021.
NOG has a rather unique modus operandi in that it invests in oil producing properties, acting as a financial partner to exploration and production names. The company has more than 6,000 gross producing wells primarily in the Bakken.
NOG stock ever since the company announced that it had agreed in 2020 to acquire its first non-operating interest in the Delaware Basin in a $12M deal. That piece of news would have hardly turned heads if the buyer was an Exxon or a Chevron. The fact that a financial distressed company with more than a billion dollars in long-term debt and a high debt-to-equity ratio made such a bold move still deep in the throes of the crisis means that NOG really believed that an oil price rebound remained firmly in the cards, in which case its latest purchase could end up being a massive bargain. Further, NOG upped its production guidance.
The ongoing oil price rally has vindicated the company’s decision.
Further, NOG’s Marcellus Shale acquisition is expected to return an average 18% FCF yield on the investment, making the shares appear deeply undervalued despite the recent run.
Last year, Northern Oil and Gas announced it acquired Reliance Marcellus LLC’s non-operated interest in Appalachia natural gas assets. According to the company, the acquisition will generate ~$125 million of free cash flow over the next four years with an average 18% FCF yield on the investment.
#2. Talos Energy
Market Cap: $1.8B
YTD Returns: 110.3%
High oil prices coupled with increasing oil and gas activity in the Gulf of Mexico helped independent exploration and production company Talos Energy (NYSE: TALO) deliver another strong quarter after a bumpy start to the year. The Houston, Texas-based Houston, Texas-based company reported revenue of $377.13M (+29.6% Y/Y), beating estimates by $55.8M while net income of $250.5 million was a massive improvement from a $16.7 million loss in the third quarter of 2021.
“Most importantly, this was a quarter focused on positioning the Company for the future and investing in key catalysts. We took delivery of our deepwater rig and have commenced our drilling program, which includes several key organic growth prospects that will set the foundation for the next several years,” said Talos CEO Timothy Duncan in a statement. “
During the earnings call, Talos announced it would buy Houston-based EnVen Energy in a deal valued at more than $1 billion dollars. The acquisition will expand Talos' Gulf of Mexico holdings by 35%.
#3. APA Corp.
Market Cap: $15.9B
YTD Returns: 74.8%
APA Corp. (NYSE: APA), formerly Apache, posted revenue of $2.89B (+75% Y/Y), $540M higher than the Wall Street estimate; $422 million net profit compared with a $113 million loss in the same period in 2021, while Q3 Non-GAAP EPS of $1.97 beat by $0.19..
“APA’s diversified and unhedged portfolio delivered another strong quarter, generating $609 million of free cash flow,” said APA CEO John Christmann in a statement.
Back in July, APA Corp. announced acquisition of assets in the Permian Basin for $505 million near its current operations. The company revealed that the Permian is responsible for most of its 382,000 barrels per day.
#4. PDC Energy
Market Cap: $7.5B
YTD Returns: 55.6%
Denver, Colorado-based PDC Energy Inc.(NASDAQ: PDCE) is an independent exploration and production company that acquires, develops, and produces crude oil, natural gas, and natural gas liquids in the United States. PDC reported revenue of $1.51B (+210.5% Y/Y), $450M better than the Wall Street consensus but Q3 Non-GAAP EPS of $3.77 missed by $0.28.
J.P. Morgan's has come up with a "playbook" for oil and gas exploration and production companies saying long-term investors should focus on companies with the highest potential return of "significant" levels of free cash flow to equity holders--rather than merely using it for reducing debt, as many oil and gas companies have been doing Indeed, JPM says that since the end of 2020, companies in the firm's coverage group have cut net debt by $9.65 billion through balance sheets of June 30. JPM has picked PDC Energy as one such company.
#5. Ring Energy
Market Cap: $569.4M
YTD Returns: 19.5%
Ring Energy Inc. (NYSE: REI) is an exploration and production company that engages in the acquisition, exploration, development, and production of oil and natural gas in Texas and New Mexico. Ring Energy reported record quarterly revenue of $84.96M (+24.6% Y/Y) while net income increased nearly six-fold to $41.9 million, or $0.32 per diluted share, from $7.1 million, or $0.06 per diluted share, for the first quarter of 2022.
Ring Energy lowered Q4 capital spending guidance to $42M-$46M, down ~15% from its prior estimate of $50M-$54M while maintaining its Q4 sales volumes estimate of 18K-19K boe/day. The company also said it plans to complete and place on production the remaining three wells drilled in Q3, while drilling and completing 8-9 new wells.
For FY 2023, the company estimated total capital spending of $150M-$175M, while planning to maintain or slightly increase full-year average sales volumes compared to anticipated Q4 2022 sales volumes.
By Alex Kimani for Oilprice.com
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