Turn, Turn, Turn - Commodity Price Swings Reshape E&P Earnings in Q2 2026

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Speaker B: Wednesday, August 26, 2026 turn, turn, turn Commodity Price Swings reshape E and p earnings in Q2 2026 published by Nicholas Coccioni and Thomas Birakri the second quarter of 2026 was a tale of two commodity markets for US exploration and production companies. A uh 29% quarter over quarter increase in WTI oil prices to $92.53 per barrel provided a more powerful tailwind for oil weighted E and Psych who experienced a pre tax operating profit turnaround with a war driven late Q1 price surge. In stark contrast, plunging natural gas prices wounded gas weighted producers after bountiful Q1 results. In today's RBN Blog we review the Q2 2026 results of the 37 publicly traded E&Ps. We cover and analyze the remarkably wide performance gap. They reveal. The oil price climb from the Iran conflict and a spike in natural gas prices driven by an unusually cold winter across the eastern US combined to double the average pre tax profits for a 37 company universe from Q4 2025 to Q1 2026 to $15.12 per boe, the highest result since mid 2023. The continuing rise in oil prices spurred another 31% increase in pre tax operating profits in Q2 2026 to $19.83 per boe. The richest since 2022. Cash flow also reached a post 2022 peaks, increasing 8% to $29.72 per boe. Upstream revenues rose 6% to $44.67 per boe. Costs provided little resistance to the improvement in commodity realizations. Lifting costs increased 2% to $12.71 per boe, primarily because of a 16% increase in price sensitive production taxes to $2.50 per boe. Production costs declined 1% to $10.20 per boeing, while depreciation, depletion and amortization or DD&A expenses increased 2% to $11.78 per boe. Impairment charges, which had weighed heavily on earnings in recent quarters, virtually disappeared, declining 97% to just 9 cents per boe, while exploration expenses fell 25% to 26 cents per boe. However, the overall results show a wide variation in returns between companies with different portfolio weightings. The oil weighted E&Ps more than doubled earnings and generated $40.16 per boe of cash flow, while the diversified producers also benefited handsomely from stronger crude prices. Gas weighted E&PS move sharply in the opposite direction with earnings plunging 75% as Appalachian Gas prices collapsed. With oil prices already retreating in the third quarter and Permian natural gas prices staging a dramatic recovery, the commodity price deck is shifting again. The Q2 improvement was overwhelmingly a price story rather than a volume or cost story. Oil and gas production at just under 1.5 billion boe was up about 1% from Q1 2026 with production and underlying costs little changed. Higher commodity realizations flowed directly through to revenues and the bottom line. The near disappearance of impairment charges provided an additional boost to reported earnings, although the rise in cash flow was which is unaffected by those non cash charges confirms the underlying improvement in operating performance. Next, let's look at the earnings by peer group. The earnings of the oil weighted E&Ps more than doubled in Q2 2026 to $25.97 per boe, up from $12.74 per boe in Q1 2026. As WTI oil prices surged 29% to $92.53 per barrel, cash flow increased 38% to $40.16 per boe while upstream revenues rose 29% to $54.21 per boe. However, extremely weak Waha natural gas prices somewhat dampened the revenue boost, averaging negative $3.04 per million BTU during the quarter. The results demonstrate the considerable operating leverage these producers have to crude prices. A UH 29% increase in WTI was accompanied by a 104% increase in per unit earnings as most operating costs changed little compared with the first quarter. Cash flow responded less dramatically but still increased faster than crude prices, rising 38%. The primary cost offset was production taxes, which typically move with commodity prices and increase 30% to $3.39 per boe. Production costs increased 3% to $10.66 per boe while DDNA expenses were up 5% to $13.92 per boeing. Impairment charges fell 98% to 7 cents per boe and exploration expenses were cut in half to 20 cents per boe. The relatively stable cost structure allowed much of the improvement in crude realizations to fall through to the bottom line. Four companies earned more than $2 billion during the quarter. Conoco Phillips led the way, posting a profit of $6.2 billion and generating $9.2 billion in cash flow. Occidental Petroleum earned $3 billion while generating nearly $5 billion in cash flow. Diamondback Energy posted a $2.5 billion profit and $3.8 billion in cash flow, and Devon Energy earned $2.3 billion while generating $3.7 billion on a per unit basis. California Resources posted the largest profit at $37.72 per boe, while Thales Energy registered the strongest cash flow uh at nearly $60 per boe. Reported oil and gas production by the peer group was down 3.1% in Q2 26 primarily because of the impact of the Kotera Energy Devon Energy merger m, which closed May 7. Excluding Devon Energy from the comparison, peer group oil and gas production was flat during the quarter. That lack of organic volume growth further underscores that Q2's earnings improvement resulted primarily from stronger crude prices rather than increased production. The diversified E&P's also had a strong second quarter, with profits surging 71% to $20.90 per Boeing. Cash flow increased 16% to $32.93 per boe, while upstream revenues rose 13% to $44.80 per boe. On the back of strong crude prices, total cost declined 13% to $23.89 per boe, primarily because of the near elimination of impairment charges. Lifting costs increased 4% to $11.87 per boe as price sensitive production taxes jumped 16% to $2.60 per boeing, while production costs increased just 1% to $9.27 per boe. Impairment charges fell 96% to 16 cents per boe, while exploration expenses increased 9% to 49 cents per boe. As their name suggests, the diversified E&P's broader commodity mix moderated their exposure to both sides of the Q2 price environment. Their oil production benefited from the sharp increase in crude prices, but natural gas exposure limited the magnitude of the improvement compared with the oil weighted group. The flip side of that diversification was evident among the gas weighted producers whose much greater exposure to collapsing appellation prices resulted in dramatically weaker results. More on those E and P's in a moment. The quarter provided a particularly clear example of how the commodity mix can influence financial performance even when companies operate in the same upstream industry. E, O N GE Resources posted the largest profit among the diversified E&Ps at UH $2.2 billion while generating $3.3 billion in cash flow. Continental Resources was the only other company to eclipse the $1 billion earnings threshold, reporting $1.1 billion and generating $1.7 billion in cash flow. SM Energy $987 million. APA Corporation, $981 million and Ovintiv were close behind with each generating between $1.5 billion and $1.6 billion in cash flow on a per unit basis. Magnolia Oil and Gas posted the group's Highest earnings at $28.35 per boe, while Murphy Oil led in cash flow at $45.36 per UH boe. Oil and gas production by the group increased 0.6% to 418.3 million boe in Q2 2026. SM, M Energy and Infinity Natural Resources posted production gains of 20% and 18% respectively, largely reflecting acquisitions completed earlier this year. The gas weighted E&Ps moved in the opposite direction during Q2. Earnings plunged 75% to $4.14 per boe as Appalachian Gas Prices Transco Zone 6 fell sharply from $12.41 per million BTU to $2.24 per million BTU. Cash flow declined 55% to $9.91 per boe while realized prices dropped 42% to $17.84 per boe. Lower commodity prices did provide some relief on costs. Lifting costs declined 8% to $7.92 per boe as production taxes fell 40% to $0.39 per boe while production costs declined 5% to $7.53 per boeing DDA expenses increased 6% to $5.67 per boe. Impairment charges increased 73% but remained negligible at just $0.03 per boe while exploration expenses declined 19% to $0.07 per boe. The dramatic reversal from Q1 illustrates the gas weighted group's earnings sensitivity to short term changes in commodity prices. Appalachian Natural Gas had been an important contributor to Q1 results, but the collapse in regional pricing erased UH much of that benefit just one quarter later. Unlike the oil weighted E&Ps whose relatively stable operating costs magnified the impact of rising crude prices, the Gas weighted E&Ps faced the same operating leverage. Working in reverse, EQT Corporation posted the largest profit and cash flow in the peer Group during Q2 2026 at UH $369 million and $1.1 billion respectively. Anturo Resources ranked second in profits at AH $269 million while Expand Energy was second in cash flow generation at $968 million on a per unit basis. Diversified Energy was the most profitable company in the gas weighted group earning $10.79 cents per boe and generating a uh peer leading $16.23 per boe in cash flow. Its outperformance also illustrates the importance of commodity mix during the quarter. Although classified as a gas weighted EE&P, 14% of diversified energy's production was oil and another 15% was NGL's. That 29% liquids exposure provided an earnings buffer to weak natural gas prices. Oil and gas production by the gas focused peer group increased 2% from the prior quarter. Comstock Resources posted a 15% gain reflecting strong Haynesville drilling results, while Antoro Resources increased production 9% primarily through acquisitions. With nearly 2/3 of Q3 2026 already in the books, the commodity backdrop has shifted again. WTI has averaged $78.99 per barrel so far this quarter, down about 15% from Q2 with similar declines at the Cushing and Midland hubs. That suggests the extraordinary earnings leverage enjoyed by the oil weighted E and Ps in Q2 will likely work in reverse during Q3, putting downward pressure on upstream revenues, earnings and cash flow. There is, however, an important offset for Permian producers. Waha natural gas prices, which averaged a punishing negative $3.04 per million BTU during Q2, have staged a dramatic turnaround, averaging about $1.75 per million BTU so far in Q3. The shift is tied to new pipeline capacity coming online. That nearly $5 per million BTU swing should eliminate some of the drag on Permian financial performance during Q2 for companies with large associated gas volumes. Improving WAHA prices could partially cushion the impact of lower crude prices. The outlook for the gas weighted producers appears less dramatic. Appalachian and Henry Hub prices have changed little relative to Q2 levels, suggesting that a UH major earnings rebound may have to wait for a more meaningful recovery in natural gas prices during the winter season. Taken together, the early Q3 data point toward some narrowing of the enormous profitability gap that opened between the oil and gas weighted peer groups in Q2, although oil producers should continue to enjoy substantially stronger per unit margins, Turn Turn Turn was written by Pete Seeger in the late 1950s with the lyrics quoting the first eight verses of the third chapter of the biblical book of Ecclesiastes. The song was first released under the title To Everything There Is a Season on the Limelighters folk matinee album released in 1962. The song's author, Pete Seeger, released it later in the same year on his the Bitter and the Sweet album. The the Birds recorded The song in 78 takes at Columbia Studios in Hollywood in September to October 1965 with Terry Melcher producing. It was released as a single in October 1965 and went to no. 1 on the Billboard Hot 100 Singles chart. The song prominently features Jim Roger McGuinn's 12 string Rickenbacker guitar. It is the first cut on side one of the Byrd's second studio album of the same name. Personnel on the record were Jim Roger McGuinn lead 12 string guitar, vocals Gene Clark rhythm guitar, tambourine vocals, David Crosby rhythm guitar vocals Chris Hillman, bass and Michael Clark drums. Turn Turn Turn was the Byrdes second studio album and was produced by Terry melcher. Released in December 1965, the album went to no. 17 on the Billboard 200 albums chart. This album would help put the Birds at the top of the folk rock movement they helped create. The album would be the last to feature full participation of original member Gene Clark, who would leave the band in 1966. The Byrds were an American rock band formed in Los Angeles in 1964. The band went through 11 members until its final dissolution in 1973, with Jim Roger McGuinn being the only original member in its lineup. They released their reunion and final album Birds with all original members in March 1973. It received poor reviews and went to no. 20 on the Billboard 200 albums chart. The Byrds were pioneers in the folk rock and later in the country rock genre. The Byrds released 12 studio albums, three live albums, six EPs, 47 compilation albums and 29 singles. The group was inducted into the Rock and Roll hall of fame in 1991. Gene Clark died in 1991, Michael Clark in 1993 and David Crosby in 2023. McGuin and Hillman remain active in various solo and band projects to this date. Hillman was a founding member of the Flying Burrito Brothers and the Desert rose Band. Roger McGuinn performs as a solo artist and will be appearing at various venues across the US Beginning in September.

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