2008 2nd Quarter Earnings Results for Energy Stocks

Update on the 2nd Quarter 2008 Earnings Season

Energy Exploration and Production Companies, E &  P

Most of the earnings for the energy companies that we follow have been reported. Below are the earnings information on the companies in the GEA portfolio (some of the companies we own are long-term options or have shorted the puts and we will probably own the companies when we get exercised).

Some of the companies had terrific earnings. On average earnings were up almost 40%. Unfortunately stock prices don’t reflect the company’s fortunes. Most of the stocks are down for the year due to a weak outlook for the economy and potentially lower prices for energy.

Wall Street and investors love companies that beat expectations and in that area the earnings picture is mixed. In this environment it doesn’t matter because of the downward pressure on crude oil prices.

We are probably looking at peak earnings for the next year to 18 months, but we’re not buying these stocks for earnings, but for their reserves. Longer term, when the global economy expands again, we should see upward pressure on energy prices and probably more intense than what we saw earlier this year.

A few of the companies had bad earnings because of hedging and mark to market of those hedges (we weren’t alone in our suspicions of oil’s move to the $150 area.). Some of the hedges on these companies’ books could increase in value and earnings could recover.

Part of the suprise demand for oil and natural gas was from investors and traders. We can see how quickly that can change.

Oil Drillers and Service and Equipment Companies

We have been reducing our exposure to this group as earnings will probably peak next year and we are probably close to peak valuations. At the end of the day, we would rather own oil reserves, versus oil rigs. We believe oil reserves will continue to become valuable over time.

Here are the earnings for the oil service & equipment companies we follow:

The oil drillers and service and equipment companies had excellent earnings and were able to beat expectations, but most are underwater for the year. Because of earnings, they are not down as much as the E & P companies.

We will discuss the technicals of oil and oil stocks early next week. Oil needs to find a bottom. Once a bottom for oil can be found then energy stocks can find their bottoms. Once they’re found, there should be some excellent bargains.

Of course, disruptions to supplies and geopolitical concerns can reverse the energy sectors slide.

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