APA Q3 Earnings Miss Even as Callon Buyout Drives Production

Houston, Texas-based APA Corporation explores for, develops, and produces natural gas, crude oil, and natural gas liquids. With a market cap of $8.1 billion, the company also has exploration and appraisal activities in Suriname, as well as holds interests in projects located in Uruguay and internationally.

Shares of this independent energy company have significantly underperformed the broader market over the past year. APA has declined 39.9% over this time frame, while the broader S&P 500 Index ($SPX) has rallied nearly 35.7%. In 2024, APA stock is down 38.6%, compared to the SPX’s 25.5% rise on a YTD basis.

Narrowing the focus, APA’s underperformance looks less pronounced compared to the SPDR S&P Oil & Gas Exploration & Production ETF . The exchange-traded fund has gained about 2.2% over the past year. Moreover, the ETF’s 3.2% gains on a YTD basis outshine the stock’s double-digit losses over the same time frame.

Natural gas futures have been climbing steadily toward the $3/MMBtu mark, a key psychological level fueled by multiple catalysts. The commodity jumped 9.4% on Monday alone, its biggest one-day gain in eight months. December futures closed at $2.91 on the New York Mercantile Exchange yesterday. This upward momentum has also boosted gas-focused stocks, with companies like Comstock Resources CRK, Antero Resources (AR), EQT Corporation EQT and Range Resources RRC seeing notable increases in their share prices.

Let's take a closer look.

4 Reasons Why Natural Gas Prices Surged

Hurricane Rafael and Production Disruptions in the Gulf of Mexico: Natural gas prices have surged in response to supply disruptions caused by Hurricane Rafael, which temporarily cut production by approximately 16% in the Gulf of Mexico. This unexpected shutdown removed around 310 million cubic feet of daily production from the market, tightening supply when the demand for natural gas is already high. As Gulf facilities gradually come back online, any delay in restoring full production could keep prices elevated, especially if additional storms impact the region in the coming months.

Colder Weather Forecasts: As winter approaches, forecasts for colder-than-expected weather across the United States are fueling expectations of increased heating demand. The Energy Information Administration (“EIA”) reported a 2.7% rise in natural gas consumption in response to these forecasts. In colder conditions, utilities typically ramp up withdrawals from storage to meet residential and commercial demand. Despite storage levels currently sitting above the five-year average, the start of withdrawals has already added upward pressure on natural gas prices. If colder weather persists, prices could continue their bullish trend, signaling strong seasonal demand.

Rising LNG Exports and Tightening U.S. Supply: International demand for U.S. liquefied natural gas (“LNG”) has seen a steady increase, with Europe, in particular, relying heavily on American LNG to replace reduced Russian supplies. U.S. LNG exports are now nearing record highs, averaging around 13 billion cubic feet per day. This strong demand for exports, combined with declining domestic production, has tightened the market. Analysts note that domestic supply recently fell to 100.1 billion cubic feet per day, the lowest since the start of the year, further supporting higher prices as supply becomes stretched between local and international needs.

Reduced Renewable Output: Lower wind speeds across the United States and Europe have reduced renewable energy output, pushing more demand onto natural gas-fired power plants to meet electricity needs. This phenomenon, known as "dunkelflaute" in Europe, has driven utilities to increase their reliance on natural gas, further supporting prices. As renewable output remains variable, natural gas continues to be a reliable alternative, reinforcing its essential role in the energy mix and keeping prices elevated in both the United States and Europe.

Gas-Focused Stocks Gain in November

Comstock Resources: CRK is an independent natural gas producer with operations in the Haynesville shale in North Louisiana and East Texas. The Zacks Rank #3 (Hold) company’s low operating cost and over 30 years of drilling inventory are some of the positives. During the July-September period of 2024, CRK’s total production consisted almost entirely of natural gas.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Antero Resources: It is one of the leading natural gas producers in the United States. Antero Resources has more than two decades of premium low-cost drilling inventory in the prolific Appalachian Basin, indicating a strong production outlook. AR churned out 313 billion cubic feet equivalent (Bcfe) in the most recent quarter, of which more than 60% was natural gas.

EQT Corporation: EQT holds the position of being the largest natural gas producer in the domestic market based on average daily sales volumes. With a primary emphasis on the Appalachian Basin, spanning Ohio, Pennsylvania and West Virginia, the company’s share of natural gas in its overall production/sales is more than 90%.

Range Resources: The company is an U.S. independent natural gas producer with operations focused in the Appalachian Basin. Range Resources’ large contiguous acreage position provides more than 30 years of low-breakeven, high-return inventory. The company produced 202.8 Bcfe from these assets in the third quarter of 2024 — 68% natural gas.

What Does the Immediate Future Hold for Natural Gas?

With supply disruptions, seasonal demand, and strong international interest in U.S. LNG, the natural gas market appears poised for continued bullishness. Colder weather forecasts and steady export demand could maintain upward pressure on prices well into winter. For investors, this dynamic creates a promising opportunity in natural gas-focused stocks, as the current factors underpinning price growth suggest a strong performance outlook for the sector through the colder months.

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