J P M O R G A N North America Equity Research 08 December 2025 2026 E&P and Natural Gas Outlook Oil and NGL Fundamentals Stuck Between a Rock and a Hard Place While Tailwinds Continue for U.S. Gas; Upgrade CNX and DVN, Downgrade AR, OXY, and RRC JPM View: The 2026 E&P Outlook continues to be framed by supply side risks for oil and liquids, but the long-awaited demand inflection for natural gas has finally arrived. While there may be some temptation to take the other side of the "awash in oil" trade, the mag ...

Core Viewpoint - Permian Resources Corporation is considered one of the most undervalued stocks on the NYSE, despite a recent price target reduction by Piper Sandler from $21 to $20, while maintaining an Overweight rating on the shares [1][3]. Production and Financial Performance - In Q3, Permian Resources achieved an oil production of 187,000 barrels per day, marking a 6% sequential increase from Q2, contributing to a total production of 410,000 barrels of oil equivalent per day [2]. - The company raised its full-year production guidance to a midpoint of 181,500 barrels of oil per day and 394,000 barrels of oil equivalent per day [2]. - Total revenue for Q3 reached $1.32 billion, reflecting an 8.74% increase compared to the same period last year [3]. - Earnings per share were reported at $0.37, exceeding expectations by $0.08 [3]. Operational Insights - Despite strong production and financial results, the company acknowledged ongoing uncertainties in the macro environment, particularly regarding the potential impact of suppressed commodity prices on future growth [3].

Core Insights - Helmerich & Payne, Inc. (HP) reported a fourth-quarter fiscal 2025 adjusted net loss of 1 cent per share, significantly missing the Zacks Consensus Estimate of adjusted net income of 26 cents, and a considerable decrease from the prior year's profit of 76 cents due to weakness in the International Solutions segment and $56 million in non-recurring charges [1] Financial Performance - Operating revenues reached $1 billion, surpassing the Zacks Consensus Estimate of $976 million, with Drilling Services sales exceeding the consensus by 3.2% and increasing by 45.8% year-over-year [2] - The company distributed approximately $25 million to shareholders as part of its ongoing dividend program [2] Debt Management - As of the end of October, HP repaid $210 million of its existing $400 million term loan, exceeding prior expectations of $200 million by the end of calendar year 2025, and now anticipates full repayment by the end of the third quarter of fiscal 2026 [3] Segment Performance - North America Solutions: Operating revenues of $572.3 million, down 7.4% year-over-year, with an operating profit of $118.2 million compared to $155.6 million in the prior year, but beating the estimate of $99.3 million [4] - International Solutions: Operating revenues of $241.2 million, up 430.6% from $45.5 million in the prior year, but an operating loss of $75.7 million compared unfavorably to a loss of $3.9 million in the prior year [5] - Offshore Solutions: Revenues of $180.3 million, up 554.7% from $27.5 million in the prior year, with an operating profit of $20.3 million compared to $4.3 million in the prior year, beating the estimate of $19.8 million [6] Financial Position - In the reported quarter, HP spent $426.4 million on capital programs, with $196.8 million in cash and cash equivalents and long-term debt totaling $2.1 billion, resulting in a debt-to-capitalization ratio of 42.1% [7] Guidance for FY26 - The company anticipates gross capital expenditures of $280-$320 million for fiscal 2026, with $40-$60 million for North America Solutions and $230-$250 million for maintenance and reactivation across its global drilling fleet [8][9] - Operating guidance includes an average contracted rig count of 132-148 in North America Solutions and 58-68 for International Solutions, with Offshore direct margins projected at $100-$115 million [9]

Core Viewpoint - The U.S. stock market is experiencing volatility due to concerns over tech and AI stock valuations, prompting investors to consider dividend stocks for passive income [1] Dividend Stock Recommendations - Investors may find it challenging to select suitable dividend-paying stocks, making Wall Street analysts' recommendations valuable for identifying stocks with strong fundamentals [2] Company Highlights Diamondback Energy (FANG) - Diamondback Energy reported better-than-expected third-quarter results, returning $892 million to shareholders, which is 50% of adjusted free cash flow, through share repurchases and dividends [4] - The company declared a base cash dividend of $1.00 per share, resulting in an annualized dividend of $4 per share and a yield of 2.8% [4] - RBC Capital analyst Scott Hanold reiterated a buy rating with a price target of $173, while TipRanks' AI Analyst has an "outperform" rating with a price target of $156 [5] - Hanold views Diamondback as a core long-term holding due to its strong operational performance and low breakeven levels of $37 to $38 per barrel [6] - The company is expected to benefit from renewed gas-fired power prospects in the Permian Basin, with management optimistic about securing more power/data center deals [7] Permian Resources (PR) - Permian Resources reported strong third-quarter earnings, declaring a base dividend of 15 cents per share for the fourth quarter, leading to an annualized dividend of 60 cents per share and a yield of 4.5% [9] - Hanold reaffirmed a buy rating with a price target of $18, while TipRanks' AI Analyst has an "outperform" rating with a price target of $14.50 [10] - The company is expected to maintain solid free cash flow and steady capital spending, with the potential for an increase in fixed dividends in early 2026 [14] Duke Energy (DUK) - Duke Energy reported better-than-anticipated adjusted earnings per share for the third quarter, driven by new rates and increased retail sales volumes [15] - The company declared a quarterly cash dividend of $1.065 per share, resulting in an annualized dividend of $4.26 per share and a yield of 3.4% [16] - Evercore analyst Nicholas Amicucci reaffirmed a buy rating with a price target of $143, while TipRanks' AI Analyst has a "neutral" rating with a price target of $135 [16] - Duke Energy plans a capital investment of $95 billion to $105 billion for 2026 to 2030, with a target of 30% to 50% equity funding [17] - The company is well-positioned for growth, expecting to add at least 8.5 gigawatts of new dispatchable generation across its service areas [18]

Core Insights - Permian Resources Corporation (NYSE:PR) is recognized as one of the 13 most undervalued stocks under $20, with Roth Capital raising its price target from $15 to $16 while maintaining a Buy rating [1][2] Operational Performance - The company reported its highest-ever quarterly free cash flow per share during Q3 of fiscal 2025, with oil production reaching 187,000 barrels per day, exceeding expectations and showing a 6% sequential increase [2][4] - CEO William Hickey highlighted operational efficiencies due to strong execution in Texas and a 6% reduction in controllable cash costs compared to the previous year, driven by lower lease operating expenses and drilling and completion costs [3][4] Financial Metrics - Adjusted operating cash flow was reported at $949 million, while adjusted free cash flow was $469 million [4] - The company has raised its full-year oil production guidance to 181.5 million barrels per day and its oil equivalent production target to 394.0 million barrels of oil equivalent per day [4] Future Projections - Roth Capital has increased its forecasts for the company's cash flow per share by 3% for 2025 and by 8% for 2026, reflecting anticipated production increases [5]

Core Insights - Equinor ASA reported third-quarter 2025 adjusted earnings per share (EPS) of 37 cents, missing the Zacks Consensus Estimate of 57 cents, and reflecting a 53.2% decline from the previous year's EPS of 79 cents due to net impairments from a lower price outlook [1][10] Financial Performance - Total quarterly revenues reached $26 billion, an increase from $25.4 billion in the prior-year quarter, and exceeded the Zacks Consensus Estimate of $24.3 billion, driven by a 7% growth in production from Johan Sverdrup and Johan Castberg [2][10] - The company generated a negative net cash flow of $3,565 million in the quarter, an improvement from a negative net cash flow of $3,984 million in the year-ago period [10][11] - Organic capital expenditures amounted to $3.4 billion in the third quarter [11] Segment Analysis - **Exploration & Production Norway (E&P Norway)**: Adjusted earnings were $5,618 million, down 4.4% from $5,875 million in the year-ago quarter, impacted by natural declines in fields and lower liquid prices [3] - **E&P International**: Adjusted operating profit totaled $396 million, a decrease of 2.7% from $407 million in the previous year, primarily due to lower production volumes and liquid prices [5] - **E&P USA**: Adjusted operating profit fell 82% to $37 million from $207 million in the third quarter of 2024, affected by lower liquid prices and higher operating expenses, with impairments of $385 million related to two producing assets [7] - **Marketing, Midstream & Processing**: Reported adjusted earnings of $299 million, a 45% decline from $545 million a year ago [9] - **Renewables**: Adjusted loss narrowed to $64 million from a loss of $115 million in the previous year, attributed to reduced operating expenses [9] Production Metrics - Average daily production of liquids and gas increased by 8.7% to 1,422 thousand barrels of oil equivalent per day (MBoe/d) from 1,308 MBoe/d in the prior-year quarter, supported by new fields coming online [4] - Average daily equity production of liquids and gas in E&P USA declined by 20% to 267 MBoe/d from 334 MBoe/d in the year-ago quarter due to asset divestments and production halts [6] - The integrated firm's average equity production of liquids and gas was 441 MBoe/d, up 29% from 342 MBoe/d in the year-ago period, driven by increased gas production from Appalachia [8] Balance Sheet - As of September 30, 2025, the company reported $8,114 million in cash and cash equivalents, with long-term debt of $25,070 million [12] Outlook - Equinor reiterated its 2025 oil and gas production guidance, expecting a 4% year-over-year growth, and restated its organic capital spending budget of $13 billion for the year [13]

Core Insights - PBF Energy Inc. reported a third-quarter 2025 adjusted loss of 52 cents per share, which was better than the Zacks Consensus Estimate of a loss of 69 cents and improved from a loss of $1.50 per share in the same quarter last year [1][9] - Total revenues for the quarter decreased to $7.7 billion from $8.4 billion year-over-year, but exceeded the Zacks Consensus Estimate of $7.5 billion [1][9] - The better-than-expected results were attributed to reduced costs and expenses, although lower throughput volumes partially offset these positives [2] Segment Performance - The Refining segment reported an operating income of $232.3 million, a significant improvement from an operating loss of $341.2 million a year ago, but fell short of the estimate of $257.6 million [3] - The Logistics segment generated a profit of $149.2 million, up from $51.3 million in the prior-year quarter, and exceeded the estimate of $53.2 million [3] Throughput Analysis - Crude oil and feedstock throughput volumes averaged 871 thousand barrels per day (bpd), down from 935.6 thousand bpd in the previous year and below the estimate of 887.5 thousand bpd [4] - The throughput distribution by region was as follows: East Coast 35.4%, Mid-Continent 16.2%, Gulf Coast 21.5%, and West Coast 26.9% [4] Margins - The company-wide gross refining margin per barrel of throughput was $9.00, an increase from $6.79 in the previous year and above the estimate of $6.57 [5] - Regional gross refining margins were as follows: East Coast $8.14 (up from $4.31), Gulf Coast $10.18 (up from $6.84), Mid-Continent $11.03 (up from $9.83), and West Coast $7.96 (up from $7.65) [6] Costs & Expenses - Total costs and expenses for the quarter were $7.4 billion, down from $8.8 billion in the prior-year period, while the estimate was $7.1 billion [7] - Cost of sales, including operating expenses and depreciation, amounted to $7.6 billion, lower than $8.7 billion a year ago [7] Capital Expenditure & Balance Sheet - PBF Energy invested $124.4 million in capital for refining operations and $3.3 million for logistics businesses [10] - As of the end of the third quarter, the company had cash and cash equivalents of $482 million and total debt of $2.4 billion, resulting in a total debt-to-capitalization ratio of 31% [10] Q4 Outlook - For the fourth quarter of 2025, PBF Energy expects throughput volumes on the East Coast to be between 320,000 bpd and 340,000 bpd, Mid-Continent between 140,000 bpd and 150,000 bpd, Gulf Coast between 170,000 bpd and 180,000 bpd, and West Coast between 230,000 bpd and 240,000 bpd [11]

Core Insights - U.S. upstream producers are experiencing divergent narratives based on the type of molecules they sell, with oil producers facing challenges while gas producers are seeing growth and profitability potential [1] Group 1: Oil Producers - Five Permian-focused producers have a median EV/EBITDAX of 3.7x and a price per flowing barrel near $34,000, yet share prices have declined about 13% year-over-year despite robust EBITDAX margins averaging 66% [2] - Companies like Diamondback Energy emphasize discipline as a competitive advantage, but the market is seeking growth options rather than just balance-sheet strength [3] - The Dallas Fed Energy Survey indicates a negative sentiment in the E&P business activity index, with nearly two-thirds of respondents maintaining flat capital budgets for 2025, reflecting a shift from growth to return stability [4] Group 2: Gas Producers - Appalachian producers are experiencing a contrasting narrative, with median EV/EBITDAX multiples of 8.6x and median stock price gains of 15% year-over-year, driven by structural gas demand from LNG export growth and rising U.S. power consumption [5] - The CEO of EQT highlighted optimism for a multi-decade growth story as the U.S. becomes a global swing supplier of natural gas, while Range Resources benefits from expectations of long-life reserves and low debt [6] - The Dallas Fed Survey projects Henry Hub prices near $4.00 per mcf in 2026, with half of gas-weighted firms citing LNG expansion and electrification as demand catalysts, a significant increase from the previous year [7] Group 3: Valuation Divergence - Oil valuations are constrained by capital-discipline fatigue, while gas valuations are elevated due to global-growth optionality, with Permian producers viewed as mature cash machines and gas producers rewarded for future export and power market potential [10] - The Permian Basin faces takeaway capacity issues, with associated gas volumes straining pipeline infrastructure, which could limit near-term flexibility for oil-weighted producers [11] - In contrast, the Appalachian Basin is seeing easing takeaway constraints with new pipeline projects, enhancing realizations and reinforcing higher valuation multiples for gas-weighted producers [12] Group 4: Market Dynamics - The U.S. upstream sector is entering a two-speed cycle, with Permian producers valued for stability and yield, while Appalachian gas producers are treated as growth stocks due to strategic positioning and export leverage [13] - Future valuation trends will depend on the success of LNG projects and AI-driven electricity demand growth, with potential for gas multiples to expand or contract based on global trade and interest rates [14]

Core Insights - Viper Energy Inc. (VNOM) reported Q3 2025 adjusted EPS of 40 cents, exceeding the Zacks Consensus Estimate of 38 cents, but down from 49 cents a year ago [1][9] - The company generated operating income of $418 million, surpassing the Zacks Consensus Estimate of $403 million and significantly up from $211 million in the same quarter last year [1][2] Production and Revenue - VNOM's oil-equivalent production reached 10,015 thousand barrels (MBoe), a substantial increase from 4,542 MBoe a year ago, and exceeded the estimate of 9,709 MBoe [3][9] - Oil accounted for approximately 51.5% of total production, with oil production rising to 5,160 MBbls from 2,482 MBbls year-over-year, surpassing the estimate of 5,054 MBbls [3][5] - Natural gas production increased to 14,655 million cubic feet (MMcf) from 6,150 MMcf in the same quarter of 2024 [4] Pricing - The average realized price per barrel of oil equivalent was $39.24, down from $45.83 in Q3 2024, while the average realized oil price was $64.34 per barrel, down from $75.24 year-over-year but above the estimate of $60.50 [5][6] - The price of natural gas was $1.02 per thousand cubic feet, significantly up from $0.13 in the year-ago quarter, while natural gas liquids were priced at $19.07 per barrel, slightly lower than $19.89 a year ago [6] Costs and Expenses - Total expenses for the quarter were $594 million, a sharp increase from $75 million in the prior-year quarter and above the estimate of $245.8 million [7][9] - On a per barrel of oil-equivalent (Boe) basis, total operating expenses were $3.50, down from $4.16 in the year-ago quarter, and below the estimate of $4.05 [7] Cash Flow and Balance Sheet - Net cash provided by operating activities was $281 million, up from $203 million in Q3 2024 [10] - As of September 30, 2025, VNOM had cash and cash equivalents of $53 million and net long-term debt of $2,241 million [11] Guidance - The company projects Q4 2025 production to be in the range of 124-128 Mboe/d, with full-year 2025 net production expected to be between 92.75-93.50 Mboe/d [12]

Core Insights - Approximately 38% of S&P 500 energy companies have reported Q3 2025 results, indicating noticeable challenges impacting earnings [1] - The Oil-Energy sector is experiencing mixed trends, with crude prices declining due to oversupply while natural gas prices are rising amid tighter supply and geopolitical tensions [2] Commodity Performance - Crude oil prices fell sharply in Q3 2025, with West Texas Intermediate averaging $65.74 per barrel, down 14% from $76.24 in Q3 2024, primarily due to oversupply as OPEC+ nations increased production by over 1.3 million barrels per day [3] - Natural gas prices rose significantly, with the Henry Hub spot price averaging $3.03 per million British thermal units (MMBtu), a 44% increase from $2.11 in Q3 2024, driven by supply disruptions and strong demand [5] Market Dynamics - Trade tensions between the U.S. and China, potential tariffs on imports from India, and softening industrial demand expectations contributed to bearish sentiment in the oil market [4] - Geopolitical disruptions in the Middle East and concerns over tariffs on LNG equipment imports have further increased production costs, supporting the rise in natural gas prices [6] Earnings Outlook - The energy sector's Q3 2025 earnings are projected to decline by 4.9% year over year, despite a sequential improvement from a negative 16.9% in Q2 2025, with revenues expected to grow only 1% [7] - In contrast, the broader S&P 500 is expected to show earnings and revenue growth of 7.3%, highlighting the energy sector's role as a market drag [8] Company-Specific Insights - Key companies to watch include APA Corporation, Permian Resources Corporation, Energy Transfer, and Devon Energy Corporation, all facing challenges in delivering earnings beats [2][10] - APA Corporation's earnings estimate is 74 cents per share, indicating a 26% decrease year over year, with a Zacks Rank of 3 [12][13] - Permian Resources Corporation's earnings estimate is 30 cents per share, reflecting a 14.29% decrease year over year, also with a Zacks Rank of 3 [14] - Energy Transfer's earnings estimate is 33 cents per share, a 3.13% increase year over year, but it holds a Zacks Rank of 4 (Sell) [15] - Devon Energy Corporation's earnings estimate is 93 cents per share, indicating a 15.45% decrease year over year, with a Zacks Rank of 3 [16]