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3 Energy Stocks That Crushed Earnings This Season

Key Points

  • Oil giant BP is back in the black and returning more cash to shareholders.
  • Diamondback Energy did everything investors could have wanted in the second quarter.
  • Chevron posted its best numbers in years.

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Higher oil prices helped these oil companies deliver a gusher of earnings in the second quarter.

Earnings season is nearing an end as most energy companies have reported their second-quarter results. Overall, the sector posted strong earnings, fueled by higher energy prices. 

However, some energy stocks stood out as they absolutely crushed it in the second quarter. Three that impressed our contributors were BP (BP -1.01%), Diamondback Energy (FANG 0.53%), and Chevron (CVX -0.80%). Here's a closer look at their quarterly results. 

A person in a hardhat and holding a laptop near an energy facility.

Image source: Getty Images.

Back in the swing of things?

Reuben Gregg Brewer (BP): European integrated energy major BP, formerly known as British Petroleum, was an ugly stock to own in 2020. Not only did it bleed red ink, like its peers, but it announced a major directional change (toward clean energy) and cut its dividend a huge 50%. Add in the most leveraged balance sheet among its peers and investors were pretty worried about whether or not BP could actually live up to the plans it was laying out.

Fast forward to the second quarter of 2021 and what a change there's been, at least performance-wise. BP is now deep in the black and has announced plans to increase its dividend (around 4%) and restart stock repurchases. The energy giant earned $0.83 per share in the second quarter, up from $0.78 in the first quarter and a loss of $1.98 in the second quarter of 2020. While BP has done some heavy lifting over the last year, the big reason for the improvement was a rise in energy prices.

BP Chart

BP data by YCharts

However, that's a huge and important issue here. BP's clean energy plan is basically to use the cash it generates from its legacy energy business to fund its transition to a cleaner future. In fact, management noted that if oil stays around $60 per barrel it should be able to keep rewarding investors well (via dividends and buybacks) while continuing its larger business overhaul. Although debt is still an issue to watch, the second-quarter results here suggest BP may not be as risky as Wall Street thought during last year's industry downturn.

Everything you wanted to see from an oil company in this environment

Matt DiLallo (Diamondback Energy): Diamondback Energy posted exceptional second-quarter results. The oil producer generated $2.40 per share of adjusted earnings, crushing the analysts' consensus estimate by $0.20 per share. 

Fueling that strong showing was a combination of higher production and oil prices. Diamondback's output surged 36% year over year, partly driven by its recent acquisition of QEP Resources. That increased output couldn't have come at a better time as Diamondback captured $45.63 per barrel of oil equivalent (BOE) produced during the period, triple what it realized in 2020's second quarter.

To top it off, the oil company raised its full-year production outlook while reducing its capital spending guidance. It now expects to produce 363,000 to 370,000 BOE per day for the year, up from its prior view of 350,000 to 360,000 BOE per day, while reducing its capital expense guidance by 6% to $1.525 billion to $1.625 billion.

"We are doing more with less," CEO Travis Stice said in the second-quarter earnings release, "producing more barrels with less capital, fewer completed wells, and fewer drilling rigs." The company was able to do that thanks to a combination of cost controls and higher-than-expected volumes on newly drilled wells.

That strong showing gave Diamondback Energy the confidence to boost its dividend by another 12.5%, its second increase this year. That pushed the oil producer's dividend yield up to 2.3%, well above the S&P 500's 1.3% average. Next year, Diamondback expects to return even more money to shareholders, aiming to distribute 50% of its free cash flow, which could come via additional dividends or share repurchases. That's exactly what investors want to see from an oil company these days.  

This Dividend Aristocrat proved its worth, yet again

Neha Chamaria (Chevron): Despite being one of the largest integrated energy companies in the world primed to benefit from the rally in oil prices, Chevron shares relatively underperformed peers through the first half of the year. The oil giant, though, proved its mettle yet again when its second-quarter numbers ripped past Wall Street estimates, and its cash flows touched 2018 levels despite demand for oil remaining below pre-pandemic levels.

Chevron's sales and operating revenue shot up 127% year over year to $36 billion, driving its net income up to $3 billion versus a loss of $8.3 billion in Q2 2020.

"Second quarter earnings were strong, reflecting improved market conditions, combined with transformation benefits and merger synergies," CEO Mike Wirth said during Chevron's earnings release. By synergies, Chevron is referring to its acquisition of Noble Energy, and it has already achieved target synergies worth $600 million three months earlier than projected.

Importantly, Chevron's second-quarter free cash flow of $5.2 billion hit a two-year high. Thanks to those strong cash flows and a tight capital spending budget, Chevron will resume share repurchases of $2 billion to $3 billion per year, beginning in the third quarter, even as it continues to cut debt. Management, in fact, reiterated its confidence in generating more than $25 billion in cash, after accounting for capital expenditures and dividends, over the next five years at a Brent crude price of $60 per barrel. That means it could effectively grow free cash flow by 10% annually through 2025.

That's the best news Chevron investors could hear as higher cash flows should also mean larger dividends, and with its second-quarterly performance, the Dividend Aristocrat just confirmed it remains one of the safest energy dividend stocks to buy and hold.

Reuben Gregg Brewer owns shares of TotalEnergies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

BP Stock Quote
BP
BP
$35.36 (-1.01%) $0.36
Chevron Stock Quote
Chevron
CVX
$181.03 (-0.80%) $-1.46
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
RDS.A
Exxon Mobil Stock Quote
Exxon Mobil
XOM
$109.86 (-0.85%) $0.94
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
RDS.B
Diamondback Energy Stock Quote
Diamondback Energy
FANG
$145.46 (0.53%) $0.76
TotalEnergies Se Stock Quote
TotalEnergies Se
TTE
$60.61 (-0.09%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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