We expect upstream energy firm Apache Corporation APA to beat expectations when it reports second-quarter 2015 results before the opening bell on Aug 6. Last quarter, the company delivered a positive earnings surprise of 40.32%. We note that Apache has outperformed the Zacks Consensus Estimate in the preceding four quarters, with an average positive surprise of 20.28%.    

Let’s see how things are shaping up for this announcement.

What is Driving the Better-Than-Expected Earnings?    

Apache has a large, geographically diversified reserve base and a multi-year trend in reserve replacement and production growth.

Moreover, the company is improving its cash balances by divesting non-core assets amid low commodity prices. This should also find a reflection in the second-quarter performance.

Additionally, although the oil price was low during second-quarter 2015, crude price rebounded from the prior quarter. To interpret it by data, we found that West Texas Intermediate (WTI) crude traded in $50–$60 per barrel range during the April to June quarter, higher than the previous quarter when crude was mostly below the $50 per barrel mark.

Hence, the slight recovery in crude price might help Apache to beat our estimate as the company produces almost 60% crude oil/ liquid hydrocarbons.

Why a Likely Positive Surprise?

Our proven model shows that Apache is likely to beat earnings because it has the right combination of two key ingredients.  

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +15.63%. This is meaningful indicator of a likely positive earnings surprise for shares.

Zacks Rank: Apache carries a Zacks Rank #3 (Hold) which, when combined with +15.63% ESP, makes us confident about an earnings beat.   

Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

Other Stocks to Consider

Other stocks in the energy sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

CONE Midstream Partners LP CNNX with an Earnings ESP of +12.50% and a Zacks Rank #1 (Strong Buy). The partnership is slated to release earnings on Aug 5.

Seadrill Partners LLC SDLP with an Earnings ESP of +12.28% and a Zacks Rank #1. The partnership is slated to release earnings on Aug 26.

Calumet Specialty Products Partners LP CLMT with an Earnings ESP of +15.79% and a Zacks Rank #2 (Buy). The partnership is likely to release earnings on Aug 5.

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