Will Production Gains Enhance Northern's (NOG) Q2 Earnings?
It's earnings season again, and energy producer Northern Oil and Gas NOG is gearing up to release its second-quarter results on Aug 2. This time around, the company’s overall earnings performance is likely to have got a boost from strong production, only to be undone by lower oil and natural gas realizations.
Investors should know that Northern employs a unique strategy wherein it owns non-operating, minority interests in thousands of oil and gas wells, which are majority-owned and operated by some leading producers. As part of this low-cost model, NOG — unlike most of its peers — does not drill any well but essentially provides financing for its acreage.
Being in the business of churning out hydrocarbons, the independent upstream operator’s top and bottom lines are primarily driven by the amount of fuel it produces and energy prices.
Click here for a complete rundown of the company’s expected Q2 performance.
A Look at NOG’s Key Performance Parameters in Q1
NOG’s first-quarter production (comprising 62% oil) surged about 25.4% from the year-ago quarter’s level to 87,385 barrels of oil equivalent per day (Boe/d). The figure also surpassed the Zacks Consensus Estimate of 84,761 Boe/d. While the oil volume came in at 53,864 barrels per day (up 29.6% year over year), natural gas totaled 201,125 thousand cubic feet per day (up 19.1% from the prior-year quarter’s figure).
The average sales price for crude oil was $73.31 per barrel, indicating a 19.6% decline from the prior-year period’s $91.19. The average realized natural gas price was $3.91 per thousand cubic feet compared with $6.94 a year ago.
How Will These Factors Impact NOG’s Q2 Results?
Northern Oil and Gas is expected to have benefited from higher output during the quarter. Considering NOG’s impressive production profile from some of the leading basins of the United States, our expectation for the Zacks Rank #3 (Hold) company’s second-quarter volume is pegged at some 90,577 barrels of oil equivalent per day (Boe/d), up 24.6% from the year-ago quarter’s level of 72,689 Boe/d.
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Of the total, our estimate for oil production indicates around 30% increase from the year-ago period’s reported number. Further, we expect NOG’s natural gas output to rise 17.3% year over year in the second quarter.
However, lower oil and natural gas realizations are likely to have hurt NOG’s revenues and cash flows. Going by our model, the company’s second-quarter average crude sales price is pegged at $71.60 per barrel — significantly down from the year-earlier level of $106.26. Additionally, our projection for the average realized natural gas prices reflects a 77.5% year-over-year drop.
Overall Earnings & Revenue Projections
The Zacks Consensus Estimate for second-quarter earnings is pegged at $1.37 per share, suggesting a 20.4% decrease from the prior-year quarter’s reported figure. For quarterly sales, the consensus mark of $413.5 million suggests a drop of 24.8% from the year-earlier quarter’s reported number.
Important Energy Releases So Far
While we wait till Wednesday for NOG to come up with Q2 numbers, let’s take a look at some key energy releases so far.
SLB SLB, the largest oilfield contractor, announced second-quarter 2023 earnings of 72 cents per share (excluding charges and credits), which beat the Zacks Consensus Estimate by a penny. SLB’s bottom line also significantly increased from the year-ago quarter’s earnings of 50 cents.
SLB’s strong quarterly earnings resulted from higher stimulation services and strong activities across all areas. As of Jun 30, 2023, the company had approximately $3.2 billion in cash and short-term investments. It had a long-term debt of $11.3 billion at the end of the second quarter.
Meanwhile, U.S. integrated major Chevron CVX reported adjusted second-quarter earnings per share of $3.08, ahead of the Zacks Consensus Estimate of $2.95. The outperformance could be attributed to a higher-than-expected bottom line in the company’s key upstream segment. The unit’s profit of $4.9 billion came in well above our estimate of $2.9 billion as domestic production hit a new high.
CVX recorded $6.3 billion in cash flow from operations compared to $13.8 billion a year ago. The decreasing cash flow could be attributed to weaker price realizations in the upstream business. Chevron’s free cash flow for the quarter was $2.5 billion. Further, the company paid $2.8 billion in dividends and bought back $4.4 billion worth of its shares.
Finally, we have refining giant Valero Energy VLO reporting Q2 adjusted earnings of $5.40 per share that came ahead of the Zacks Consensus Estimate of $5.08 per share. The beat was primarily driven by increased renewable diesel sales volumes and a decline in VLO’s total costs of sales.
The downstream operator’s second-quarter capital investment was $458 million. Of the total, $382 million was allotted for sustaining the business. As of Jun 30, Valero had cash and cash equivalents of $5.1 billion. Moreover, VLO carried total debt and finance lease obligations of $11.3 billion on its books.
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