Oil and Gas Stock Roundup: Oil, Strong Earnings Sent Stocks Soaring

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What happened

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Crude continued marching higher this week, thanks to growing optimism that the oil market is quickly getting back into balance and should stay that way since OPEC seems increasingly likely to extend its production cuts. Those dual fuels pushed the U.S. oil benchmark, WTI, up about 2% on the week to slightly more than $55 a barrel, which is its highest level in more than two years.

However, higher crude was just one of the catalysts that sent oil stocks soaring this week. The other was a gusher of third-quarter earnings reports from oil companies, the bulk of which beat the market's muted expectations. That sent several oil stocks up more than 10% for the week, according to data from S&P Global Market Intelligence

So what

Leading the charge was Bill Barrett Corporation (NYSE: BBG), which rocketed more than 45% this week. Fueling that remarkable rise was Bill Barrett's third-quarter results, with the driller's net loss coming in at just $0.20 per share, which was $0.08 per share better than the consensus estimate. Driving that beat was its excellent drilling results during the quarter, which positioned the company to boost the midpoint of its full-year outlook, with it now expecting production to rise 21%. Bill Barrett also announced plans to sell its assets in Utah, which, when combined with its cash position and cash flow, would give it the money to fuel 30% production growth next year.

Canadian oil producer Baytex Energy (NYSE: BTE) also reported a narrower loss than analysts anticipated, with its CA$0.04 per-share loss besting the consensus estimate by CA$0.14 per share. That helped fuel a more than 16% gain in Baytex Energy's stock this week. Driving the better-than-expected result was Baytex's ability to produce toward the high end of its guidance range -- despite the impact from Hurricane Harvey on its Eagle Ford Shale production -- as well as its ability to push down costs in its recently acquired Peace River assets in Canada.

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SM Energy (NYSE: SM), likewise, posted a narrower loss this week, which helped drive its stock up more than 13%. Overall, SM Energy reported a loss of $0.25 per share, which was $0.06 per share better than the consensus estimate. According to CEO Jay Ottoson, the quarter "marked a significant turning point" in the company's transformation, fueled by a 31% increase in production out of its Permian Basin assets from just last quarter. That's driving a noticeable improvement in the company's margins, which could soon return SM Energy to profitability, especially if crude keeps heading higher.

Finally, Marathon Oil (NYSE: MRO) also reported expectation-beating third-quarter results this week, after it blew off Hurricane Harvey and produced above the high end of its guidance range. While Marathon Oil recorded a loss of $0.08 per share, that was better than the consensus that it would lose $0.13 per share. Furthermore, while the company lost money on paper, it was a cash flow machine during the quarter, pulling in $564 million, which fully funded its capital expenses with room to spare. Because of that, Marathon Oil remains on pace to produce at a 25% to 30% higher rate from its U.S. resource plays at the end of 2017 than it was when last year ended. Moreover, it can fund that growth while living within cash flow at current oil prices.

Now what

Shale drillers are starting to prove that all their hard work during the oil market downturn is paying off, since many are getting closer to profitability even though oil remains relatively low. Because of that, most can grow at a rapid rate, which could eventually push them back into the black. That said, of this group, the one that's best positioned to thrive at current oil prices is Marathon Oil, which is rapidly evolving into a top-tier oil growth stock, making it still worth considering even after this week's rally.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.