Permian Shale Stocks Face Third-Quarter Earnings Test

Natural gas prices in the Permian region have remained volatile, with Waha Hub spot prices turning positive in June after a record 90-day period of negative values. Despite these challenges, four of five companies highlighted still reported record results in the second quarter. Three of the five companies do not engage in drilling, while one of the two that do operates primarily in North Dakota, far from the Waha Hub. The U.S. Energy Information Administration forecasts domestic crude output to rise from 13.9 million barrels per day to 14.3 million in 2027, assuming Middle East oil flows remain constrained. Permian-focused executives cited gas takeaway capacity and regulatory issues as the primary constraints on drilling. Third-quarter earnings are now approaching, with the latest second-quarter results providing a snapshot of each company's performance. Permian Resources, for instance, reported a net 38 cents per thousand cubic feet for its natural gas, despite Waha averaging negative $3.14. Management curtailed gas output from wells with a high gas-to-oil ratio, reducing gas production by about 20 percent from the first quarter. The company's adjusted free cash flow reached a record $751 million, up from $312 million a year earlier, driven by oil production of 198,071 barrels per day. The company raised its full-year oil guidance to 199,000 barrels per day, projecting second-half production above 200,000 barrels per day with less than $1 billion in capital spending. Kinetik Holdings, another key player, processed 1.74 billion cubic feet of gas per day in the second quarter, despite curtailments due to Waha prices. Adjusted EBITDA reached a record $280.8 million, with free cash flow tripling to $105.2 million. The company raised its 2026 adjusted EBITDA guidance to between $1.04 billion and $1.1 billion, assuming curtailments will average only about 25 million cubic feet per day in the second half. Kodiak Gas Services, meanwhile, burned through $87.5 million of free cash flow in the second quarter but raised its full-year guidance. The company is investing heavily in power, including the acquisition of Distributed Power Solutions and plans to purchase up to one gigawatt of gas turbines by 2030. Total debt was $2.8 billion at the end of June, or 3.2 times EBITDA under its credit agreement.