This Is Why Natural Gas Stocks Have Been Surging Lately

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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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Winter to Be Colder: RRC, AR, CRK Stocks to Gain From Gas Demand?

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As winter approaches with colder temperatures expected, energy investors increasingly focus on natural gas, a cleaner-burning alternative to oil and coal, due to rising heating demand. As a result, Range Resources Corporation RRC, Antero Resources Corporation AR, and Comstock Resources Inc. CRK are well-positioned to benefit.

Colder Winter Forecast Across the U.S. Drives Gas Demand

In its short-term energy outlook, the U.S. Energy Information Administration forecasts a colder winter across much of the United States compared with last year's mild season. This cooler weather is expected to increase demand for natural gas to meet heating needs, thereby driving natural gas prices upward. Currently, the commodity's price is trading at $2.847 per MMBtu, suggesting an improvement of more than 14% in a month.

The higher price of natural gas is beneficial for companies like Range Resources, Antero Resources and Comstock Resources that are engaged in the exploration and production of the commodity. All the stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Natural Gas Explorer to Gain: RRC, AR, CRK

Range Resources

Range Resources is among the leading natural gas producers in the United States. The upstream energy player has a strong footprint in the prolific Appalachian basin, with a huge inventory of premium drilling sites securing future production outlook. RRC has a resilient balance sheet it can rely on when the business environment turns unfavorable.

Antero Resources

Antero Resources is among the top five natural gas companies in the United States and is a pure-play Appalachian producer. The company has a solid production outlook with a huge inventory of drilling sites. AR can sail through unfavorable business scenarios as it has an investment-grade credit rating.

Comstock Resources

Comstock Resources is also a well-known producer of natural gas with its operations spread across the prolific Haynesville Shale in North Louisiana and East Texas. Comstock’s strategy to expand its Western Haynesville acreage, now exceeding 450,000 net acres, shows significant potential, particularly with the recent advancements in drilling techniques.

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Diamondback Q3 Earnings Lag Estimates, Updates Guidance Post Merger

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U.S. energy operator Diamondback Energy FANG reported third-quarter 2024 adjusted earnings per share of $3.38, which missed the Zacks Consensus Estimate of $3.80 and decreased from the year-ago adjusted figure of $5.49. The underperformance primarily reflects a fall in overall realization.

However, revenues of $2.6 billion rose 13% from the year-ago quarter’s sales and outperformed the Zacks Consensus Estimate by 6.6% on strong production.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

FANG repurchased $515 million of shares in the third quarter and a further $185 million worth of shares in the current quarter. As previously announced, the company gave an additional $2 billion share repurchase approval.

Diamondback Energy, Inc. Price, Consensus and EPS Surprise

Diamondback Energy, Inc. price-consensus-eps-surprise-chart | Diamondback Energy, Inc. Quote

Production & Realized Prices

FANG’s production of oil and natural gas averaged 571,098 barrels of oil equivalent per day (BOE/d), comprising 56% oil. The figure was up 26.1% from the year-ago quarter and beat our estimate of 565,040.9 BOE/d. While crude and natural gas output increased 20.6% and 34.6% year over year, respectively, natural gas liquids volumes rose 33.3%.

The average realized oil price during the most recent quarter was $73.13 per barrel, 10.3% lower than the year-ago realization of $81.57 but ahead of our projection of $66.34. Meanwhile, the average realized natural gas price plunged to (26 cents) per thousand cubic feet (Mcf) from $1.62 in the year-ago period and came below our estimate of 9 cents. Overall, the upstream oil and gas company fetched $44.80 per barrel compared with $54.37 a year ago.

Costs & Financial Position

Diamondback’s third-quarter cash operating cost was $11.49 per barrel of oil equivalent (BOE) compared with $10.51 in the prior-year quarter and our projection of $12.29. The rise in costs compared to the year-ago period reflected an increase in lease operating expenses to $6.01 per BOE from $5.42 in the third quarter of 2023. Further, FANG’s gathering, processing and transportation expenses increased 10.9% year over year to $1.94 per BOE, while cash G&A expenses rose in the third quarter of 2024 to 63 cents per BOE from 51 cents during the corresponding period of 2023. Compounding the issue, production and ad valorem taxes rose 2.8% year over year to $2.91 per BOE.

Diamondback spent $688 million in capital expenditure — $633 million on drilling and completion, $52 million on infrastructure, environment and $3 million on midstream. The company booked $1 billion in free cash flow in the third quarter.

As of Sept. 30, the Permian-focused operator had approximately $373 million in cash and cash equivalents and $11.9 billion in long-term debt, representing a debt-to-capitalization of 25%.

Guidance

Diamondback Energy’s latest guidance takes into account the Endeavor merger, which was completed on Sept. 10. FANG looks to pump around 587,000-590,000 BOE/d of hydrocarbon in 2024, up from 462,000-470,000 BOE/d before. Of this, oil volumes are likely to be between 335,000 and 337,000 barrels per day (273,000-276,000 previously). This Zacks Rank #5 (Strong Sell) company also revised its forecast of a capital spending budget to between $2.88 billion and $3 billion.

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

Some Key E&P Earnings

While we have discussed Diamondback Energy’s third-quarter results in detail, let’s see how some other upstream companies have fared this earnings season.

ConocoPhillips COP, one of the world’s largest independent oil and gas producers, reported third-quarter 2024 adjusted earnings per share of $1.78, which beat the Zacks Consensus Estimate of $1.68. The outperformance can be attributed to higher oil equivalent production volumes and decreased total costs and expenses.

As of Sept. 30, 2024, ConocoPhillips had $5.2 billion in cash and cash equivalents. The company had a total long-term debt of $16.99 billion and a short-term debt of $1.3 billion as of the same date. Capital expenditure and investments totaled $2.92 billion. Net cash provided by operating activities was $5.8 billion.

Natural gas producer EQT Corporation EQT reported earnings from continuing operations of 12 cents per share, which beat the Zacks Consensus Estimate of 5 cents. The better-than-expected quarterly earnings were driven by higher gas equivalent sales volume, offset partially by lower oil price realizations.

EQT’s sales volume increased to 581.4 billion cubic feet equivalent (Bcfe) from the year-ago quarter’s level of 522.7 Bcfe. The reported figure also beat our estimate of 552.7 Bcfe. Natural gas sales volume was 547.2 Bcf, up from 491.5 Bcf in the year-ago quarter. The figure also beat our estimate of 521.6 Bcf.

EOG Resources EOG, another U.S. energy operator, reported third-quarter 2024 adjusted earnings per share of $2.89, which beat the Zacks Consensus Estimate of $2.73. Better-than-expected quarterly earnings were driven by higher oil-equivalent production volumes, offset partially by decreased realizations of crude oil and condensates, and NGL prices.

As of Sept. 30, 2024, EOG Resources had cash and cash equivalents worth $6.1 billion and long-term debt of $3.7 billion. The current portion of the long-term debt totaled $34 million. In the reported quarter, the company generated $1.5 billion in free cash flow. Capital expenditure amounted to $1.5 billion.

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