As the energy sector lines up to begin issuing its quarterly reports in the coming weeks, North American-based exploration and production (E&P) companies are expected to top earnings estimates because of higher oil and natural gas prices. In the second quarter, which ended June 30, crude oil futures jumped almost 40% and gas futures rose almost 30%.

“For the current quarter, I see positive earnings revisions in only one sector, and that’s energy,” said StarMine’s Tim Gaumer, who directs fundamental research for the San Francisco-based researcher. StarMine uses data compiled from Wall Street analysts and excludes estimates in consensus forecasts that have not been recently updated.

Included in the list of U.S. gas-weighted producers that StarMine expects to exceed earnings estimates are Anadarko Petroleum Corp., Apache Corp., Chesapeake Energy Corp., EOG Resources Inc., Ultra Petroleum Corp., Newfield Exploration Co., St. Mary Land & Exploration Co., Callon Petroleum Co. and Encore Acquisition Co.

“Buy natural gas-weighted E&P shares,” said John Gerdes, an energy analyst with SunTrust Robinson Humphrey/the Gerdes Group. Gerdes’ gas-weighted recommendations include Carrizo Oil & Gas (71% weighted), EOG (86% weighted), Petroleum Development Corp. (87% weighted), Unit Corp. (82% weighted) and XTO Energy Corp. (82% weighted).

“E&P shares now reflect $8.75 gas/$85 oil (commodity prices that deliver market return on capital), in our opinion,” Gerdes said. Long-term, he pegs equilibrium natural gas prices at $10/MMBtu and oil at $90/bbl.

For Canadian energy producers, “we believe that the key takeaways from this quarter will be continued cost creep on the operating and capital front,” wrote Amir Arif and Hui (Parker) Wang of Friedman, Billings, Ramsey & Co. Inc. “At the same time, we should see come capital budgets increase as companies review their 2008 projections based on current price decks.”

XTO issues its earnings news on Tuesday, and Range Resources Corp.’s earnings will be out on Wednesday. Newfield, Cabot Oil & Gas Corp. and EnCana Corp. have scheduled Thursday to release their earnings.

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