Equinor ASA EQNR signaled that its second-quarter results would have positive impacts from trading in natural gas derivatives used to hedge its physical deliveries, per a report by Reuters.
Traders can use future contracts to hedge their risk or speculate on the price of an underlying asset. Hedging is a process that offsets the risk of any adverse price movements.
Equinor uses derivatives to trade and change price exposure in all trading segments. The company expects a $400-$550 million increase in earnings in the second quarter of this year. The impact will be mainly realized in the company’s Marketing, Midstream and Processing (“MMP”) segment.
Equinor reported a negative hedging impact of $400-$500 million in the first quarter. However, the MMP segment’s results are expected to exceed the normal guidance range in the second quarter as the price volatility and spread within the Europe markets have been higher than normal.
Equinor is the second-largest supplier of natural gas to the Europe markets. About 20% of the company’s revenues are generated from the sales of natural gas. The integrated energy giant has made record profits from the skyrocketing commodity prices and is expected to see a further increase in earnings this year.
Equinor carries a Zacks Rank #3 (Hold). The company is a well-known name in the energy space as it is committed to reducing emissions from its operations to build up a resilient business model in line with the Paris Agreement.
Some better-ranked players in the energy space are BP plc BP, PDC Energy, Inc. PDCE and Antero Resources AR. All companies currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BP is a fully integrated energy company, with a strong focus on renewable energy. In the past few quarters, BP has successfully been reducing long-term debt. Thus, BP will likely continue generating handsome free cash flow in the coming quarters.
BP announced plans to execute a $2.5-billion share buyback, which is expected to complete before reporting the second-quarter results. The company anticipates buying back $1 billion worth of shares every quarter, considering Brent’s crude price at $60 per barrel. Also, the company expects to receive $2-3 billion of divestment and other proceeds this year.
PDC Energy is an independent upstream operator that explores, develops and produces natural gas, crude oil and natural gas liquids. As of Mar 31, 2022, PDCE had $1.65 billion in total liquidity, while its credit facility currently has a total borrowing base of $3 billion. Moreover, PDCE’s debt maturity profile is a favorable one.
A tight leash on costs and strong commodity prices are set to translate into strong levels of free cash flows for PDC Energy. As proof of this, the company anticipates generating $1.7 billion in adjusted free cash flow this year (assuming price realizations of $95 per barrel of oil and natural gas at $6), while returning $800 million-$1 billion to its shareholders during this period.
Antero Resources has positioned itself among the fast-growing natural gas producers in the United States. The leading natural gas producer is expecting a free cash flow yield of 25% in 2022, which could be the highest among Appalachian players.
Antero Resources is targeting a capital return program of 25-50% of free cash flow annually, beginning with the implementation of the share repurchase program. The company’s board authorized a share repurchase program of up to $1 billion of outstanding common stock.
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