In what has been a tumultuous period for the energy sector, second quarter earnings reports, which will be issued at a quick clip beginning Monday, undoubtedly will be scrutinized in the days ahead as stakeholders look for some breathing room.

The coming week will be witness to profit reports from across the North American energy spectrum, including exploration and production (E&P) companies Cabot Oil & Gas Corp., Encana Corp., McMoRan Exploration Co. and Newfield Exploration Co.; service providers Diamond Offshore Drilling Co., Ensco plc, Halliburton Co. (HAL), Noble Corp., Schlumberger Ltd. and Weatherford International; as well as Kinder Morgan Energy Partners LP and Enbridge Energy Partners LP. Utilities also begin issuing quarterly numbers, including Exelon Corp.

As the earnings reports are metered out, BP plc’s ability to continue to contain the runaway Macondo well blowout in the Gulf of Mexico (GOM) could be the biggest impact across the sector, suggested analysts at Tudor, Pickering, Holt & Co. Ltd.

“It’s on us…earnings season,” said the TPH team on Friday. “E&Ps are giving production updates…and HAL is reporting earnings on Monday…Put Macondo well kill events on top of this and you’ve got an environment to whip stocks around. Our bias is to be long oilfield service and GOM-influenced E&Ps.”

Since the offshore explosion in April, investors have moved to onshore E&Ps versus offshore companies, analysts noted. Onshore names, including Occidental Petroleum Corp., Plains Exploration & Production Co., EOG Resources Inc., Devon Energy Corp. and Newfield “vastly outperformed.” A Macondo solution may be near, and the “ultimate risk of GOM drilling is being defined,” so the “GOM basket,” which includes Apache Corp., Anadarko Petroleum Corp. and Noble Energy Corp., could outperform.

Some E&Ps likely also may add to their price hedges.

“E&P managers are typically eternal optimists and hope for successful drilling and higher commodity prices, but over the last six months a pragmatic hedge to 2010/2011/2012 commodity prices has taken hold,” said the TPH team. “We would expect to see E&P companies bridge the gap with further 2010 and forward hedges as the year progresses, locking in cash flows while maintaining planned capital expenditures.”

The “gassy” stocks have taken it on the chin year-to-date, down 21%, whole oily names are down only 1%. However, “we think that trade could reverse itself in the second half of the year as we move past injection season…”

E&Ps in the coming weeks could announce that they will pull back in their onshore drilling programs, said Barclays Capital’s Jim Crandell. He and his team considered the big possibility of an oversupplied gas market in the coming months but think a “drilling plunge” would be unlikely — and wouldn’t matter much to gas supplies or prices at this point.

In their “high case” for production, where the gas rig count remains at around 950, the Barclays team determined that production would be on track to increase by 2.1 Bcf/d in 2011 on average versus the base outlook.

“Although consistent with the past few years of production growth, the market would be challenged to absorb this much production growth, as 2011 inventories would be pushed to their limits and gas would be dumped in even greater size in the power markets, with a consequent price effect,” said Crandell. “This convinces us that producers will need to take the rig count lower in response to balances ahead.”

FBR Capital Market analysts, however, see some upside for gas utilities because of what was a hotter than expected second quarter.

“Favorable weather should give many of them [gas utilities] a nice boost,” going into earnings reports for 2Q2010, said the FBR team. “Currently, integrated utilities are imputing $5.30 natural gas, which is roughly in line with the 2011 natural gas strip.”

Cooling degree days in 2Q2010 “were up 15% across the U.S. and electric output was up 3.4% year over year,” said the analysts. “Most of the companies in our coverage should benefit from the heat wave…Our guess is that continuation of an industrial rebound will be a theme, as evidenced by a 7% increase in Central Industrial volumes in the second quarter.”

FBR analysts also believe earnings expectations are high for U.S. levered service stocks in 2Q2010, “particularly pressure pumping, since pricing has increased on the back of a 13% sequential rig count increase. Channel checks indicate pressure pumping capacity is effectively sold out and pricing is increasing…”

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