Ranking Upstream Companies Based on Expected Q3 Cash Flow Growth

Series overview

The earnings season has begun, and the US upstream energy sector is expected to be among the top-performing US sectors in the third quarter.

The sector is expected to experience strong YoY (year-over-year) growth in the quarter driven by strong YoY production growth, particularly in the prolific Permian Basin, and higher average realized sales prices resulting from gains in crude oil prices. Crude oil’s price averaged $69.4 barrel in the quarter compared to $48.2 per barrel in the third quarter of 2017, representing a ~44% YoY increase.

Ranking Upstream Companies Based on Expected Q3 Cash Flow Growth

On the other hand, natural gas averaged $2.85 per MMBtu (million British thermal units) in the third quarter compared to $2.95 per MMBtu in the second quarter, representing a 3.4% YoY fall. However, heavy crude oil–weighted stocks will likely outperform heavy natural gas–weighted stocks.

In this series, we’ll look at the top ten upstream companies based on their cash flow growth expectations in the third quarter. We’ll look at the cash flow growth drivers, valuations, and analyst recommendations for each of these upstream companies.

The top upstream companies based on their cash flow growth expectations in the third quarter are as follows:

  • Hess Corporation (HES)
  • Penn Virginia (PVAC)
  • Centennial Resource Development (CDEV)
  • WPX Energy (WPX)
  • ConocoPhillips (COP)
  • Whiting Petroleum (WLL)
  • Anadarko Petroleum (APC)
  • Viper Energy Partners (VNOM)
  • Oasis Petroleum (OAS)
  • Extraction Oil & Gas (XOG)

XOP constituents

Nine out of these ten companies are constituents of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Together, they form 14.7% of the ETF’s holdings. Top XOP constituents Chesapeake Energy (CHK), Murphy Oil (MUR), Southwestern Energy Company (SWN), Range Resources (RRC), and Denbury Resources (DNR) are expected to experience YoY cash flow growth of 30.4%, 55.7%, 39.2%, 25.7%, and 107.8%, respectively, in the third quarter.

The SPDR S&P Oil & Gas Exploration & Production ETF and the upstream energy sector, in general, are expected to experience strong average cash flow growth in the third quarter of 2018. In the next article, we’ll look into cash flow growth expectations from Hess Corporation in the third quarter.