Proactive Investors - Bank of America (NYSE:BAC) analysts have downwardly revised their expectations for oil and gas companies' upcoming second quarter earnings reports.
The analysts wrote in a note to clients that they cut their estimates by 6% to within sight of the consensus due to weak natural gas prices in the Permian basin in the US, as indicated by Diamondback Energy Inc (NASDAQ:FANG, ETR:7DB) reporting low realized natural gas prices.
They will be watching budget exhaustion amid continued efficiencies as a key theme for Q2.
With improved efficiency leading to quicker drilling and completion, some operators might exceed their planned well counts, risking budget overruns unless activity levels are adjusted, they believe.
Mergers and acquisitions (M&A) are another key theme after several large deals were announced during the quarter.
“The amount of deals announced in the last 12 months puts a spotlight on names that haven't announced a transaction (Coterra Energy Inc (NYSE:CTRA), Ovintiv),” they wrote.
“Strong profitability in the sector frames M&A as a luxury and not a need, but with the amount of deals reshaping the investible landscape in the sector, companies are trying to affirm their positions in the pecking order, where standing out continues to be a challenge for management teams.”
The analysts wrote that their top picks from across the sector remain unchanged going into Q2 earnings.
They continue to prefer multiple compression names EOG Resources Inc (NYSE:NYSE:EOG), ConocoPhillips (NYSE:NYSE:COP, ETR:YCP), and Coterra Energy and see Devon Energy Corp (NYSE:NYSE:DVN, ETR:DY6) as undervalued.