Truist analysis: Oil and gas sector favorites for Q2 2024

Investing.com - Analysts from Truist Securities have revealed their favorite stock picks for the oil and gas sector in the second quarter of 2024.

Although the sector's return for the quarter is slightly down by 7% compared to the 6% drop in WTI, Truist analysts believe that most exploration and production companies (E&Ps) under their coverage should post higher sequential earnings and free cash flows, given a 6% quarter-on-quarter increase in the average WTI price.

Despite some stocks underperforming the group quarter-to-date due to technical rather than fundamental issues, analysts have identified a number of E&Ps that they favor going into the late next month's Q2 2024 results.

These include Chord Energy Corp (NASDAQ:CHRD), Civitas Resources Inc (NYSE:CIVI), Devon Energy Corporation (NYSE:DVN), Permian Resources Corp (NYSE:PR), and Vital Energy Inc (NYSE:VTLE), among others.

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The analysts also observed that natural gas prices in Q2 2024 might be lower than expected, especially for the Permian group.

On the positive side, Truist analysts believe that most E&Ps are experiencing successful operations so far in 2024, as evidenced by encouraging well data. They also noted continued operational efficiencies, particularly from larger operators like Diamondback Energy Inc (NASDAQ:FANG) and Devon Energy (DVN).

However, the analysts caution that the anticipated deflation in capital expenditures and oilfield service costs might disappoint some, as it seems to be gearing towards a 5% drop year-on-year. They also expect a rise in LOE in Q2 2024 due to higher electricity costs and increased workover expenses.