Devon Energy Corp., WPX Energy Inc. and other natural gas liquids producers may report second-quarter earnings below analysts’ estimates as tumbling prices harm companies that ramped up output seeking shelter from natural-gas markets.
“It’s a massive decline in prices,” Thomas Driscoll, a New York-based analyst for Barclays Plc, said of natural gas liquids in a phone interview yesterday. “People are a little bit behind in their estimates” for revenue.
The price of natural gas liquids, which include ethane and propane, dropped in the second quarter because of increased supplies and a warmer-than-normal winter. Devon and WPX “appear the most vulnerable” to lower natural gas liquids prices, Driscoll wrote in a research note yesterday.
U.S. producers have turned to oil and natural gas liquids production as the price of gas plunged to a 10-year low in New York in April. During the second quarter, a benchmark of natural gas liquids prices fell 23 percent from the prior three-month period to average $30.27 a barrel, Dahlman Rose & Co. said in a report yesterday.
Range Resources Corp. called propane prices “soft” as a mild winter cut use of the product as a heating fuel. The company said in a statement yesterday the pricing has prompted it to change its natural gas liquids hedges, which had become less effective.
Pipeline operators are also feeling the effects of reduced liquids pricing. Enbridge Energy Partners LP, a pipeline partnership based in Houston, on July 2 cut its 2012 forecast for adjusted net income 14 percent because of the drop in gas liquids prices.
Devon, based in Oklahoma City, is expected to earn 94 cents a share in the second quarter, excluding one-time costs and gains, based on the average of 24 analysts’ estimates compiled by Bloomberg. That would be less than adjusted earnings of $1.05 a share for the first quarter. Chip Minty, a Devon spokesman, declined to comment on the earnings outlook.
WPX, based in Tulsa, Oklahoma, is seen losing 9 cents a share on an adjusted basis, according to seven analysts’ estimates compiled by Bloomberg for the second quarter. That compares with a 5-cent loss in the first quarter. Kelly Swan of WPX didn’t respond to a voicemail seeking comment yesterday.
Pioneer Natural Resources Co., Anadarko Petroleum Corp., QEP Resources Inc. and EOG Resources Inc. also have “above average exposure” to natural gas liquids, Barclays said.