I wrote a column last week about natural gas stocks and a coming rally based on strong earnings results. The gist was that earnings matter in energy stock valuations more than day-to-day commodity price fluctuations. I'm especially enjoying the run in Antero Resources (AR) since I published my column, and Rice Energy (RICE), EQT Corp. (EQT) and Range Resources (RRC) have all posted solid gains in the last week, as well.
But these are small/mid-cap stocks that aren't on every investor's radar screen. What about the Big Boys? Did they execute in the July-September timeframe, with its horrible commodity pricing and August agita over China?
Well, Friday provided evidence that earnings power matters more than tick-by-tick energy futures prices on a much, much larger scale. You probably read the headlines, but in case you missed it, Chevron (CVX) and Exxon Mobil (XOM) both absolutely crushed earnings expectations. The majors showed that downstream (refining and marketing, plus Exxon's chemicals business) can cushion results in a period of low commodity prices, and that international upstream is outperforming domestic shale plays.
So, it's been off to the races for XOM and CVX since Friday, and with oil's bounce the past few trading days an investor must be hungering for more.
The problem, of course, is that the U.S. doesn't have any other energy majors. The scale required to economically exploit hydrocarbon resources and the presence of national oil companies like Saudi's Aramco mean that the U.S. is most likely always going to be limited to the Big Two oil majors.
So, we're left with E&Ps, refiners/marketers and midstream (pipeline) companies. These companies don't have the geographic diversity of Exxon and Chevron, and, as we all know, shale drilling is a Ponzi scheme and all these companies are going bankrupt.
Not so fast, my friend.
Earnings tell the true tale and, luckily, most of the medium-sized E&Ps and pipeline MLPs I follow picked Wednesday to report third-quarter results. It's going to be a Lollapalooza of earnings all wrapped up in one big day. Oil and gas consulting and marketing firm EnerCom published a good list of results/conference call times.
One intriguing name not reporting results Wednesday is Magnum Hunter Resources (MHR). Magnum certainly sits in a position as precarious as Goodrich Petroleum (GDP). The clock is ticking for Magnum with an interest payment on its senior notes due next Friday.
I do believe Magnum's management will save this company, and TheStreet posted an excellent article on Tuesday by Lisa Allen that describes all the Magnum machinations in great detail.