The Oil & Gas Earnings Disconnect: Paper Losses, Real Cash Flow

Several producers posted GAAP losses alongside stronger cash flow, Comstock and Gran Tierra struck agreements with Azerbaijan’s state oil company, and producers laid out plans for 2027.

Third-quarter results across several companies in the PRISM Oil & Gas Index revealed a disconnect between reported profits and operating performance. Some producers recorded significant non-cash hedging losses, while others reported stronger production, cash flow and debt reduction despite GAAP losses. Each company reports its own adjusted measures, such as adjusted EBITDA, adjusted EBITDAX and free cash flow, so the figures below are best compared within a company rather than across companies.

Paper losses, real cash

Talos Energy (NYSE: TALO) reported a net loss of $81.2 million, alongside adjusted EBITDA of $406.1 million and $186.3 million of adjusted free cash flow. The offshore producer repurchased $23.6 million of stock, closed its acquisition of deepwater assets from Shell in September and raised its full-year production guidance.

Riley Exploration Permian (NYSE American: REPX) showed the same split on a smaller scale. Its $2 million net loss included a $72 million non-cash loss on derivatives that settle in future periods. Meanwhile, oil production rose 38% from a year earlier, operating cash flow grew 75% to $111 million, debt fell 35% to $245 million, and the company raised its quarterly dividend 5%.

At Granite Ridge Resources (NYSE: GRNT), daily production grew 9% to 34,641 barrels of oil equivalent per day, 55% oil, and the company reported a net loss of $10.1 million. Adjusted EBITDAX reached $107.3 million, compared with $78.6 million a year earlier, and the board approved a share repurchase program of up to $35.0 million through December 31, 2027.

Kosmos Energy (NYSE: KOS) posted a $43 million net loss but adjusted net income of $35 million, and generated about $90 million of free cash flow, its third straight positive quarter. It has reduced net debt by more than $500 million this year.

The exception that explains the rule

Comstock Resources (NYSE: CRK), a natural gas producer, shows the same accounting working in reverse. Its net income of $22 million included a $35.1 million unrealized gain on hedging contracts, reflecting changes in future natural gas prices. Hedges are designed to smooth cash flow, so their paper gains and losses can swing results in either direction without reflecting how the underlying business performed.

Two companies, one partner: Azerbaijan’s SOCAR

Comstock also announced an agreement to sell non-operated interests in its Haynesville assets to the State Oil Company of the Republic of Azerbaijan, known as SOCAR, for $1.65 billion, with closing expected by year-end. Gran Tierra Energy (NYSE American: GTE) has its own, unrelated agreement with SOCAR, in a different role: SOCAR is its partner in Azerbaijan. On October 5, Azerbaijan’s Parliament ratified Gran Tierra’s production sharing agreement for the onshore Guba-Khazaryani region. Gran Tierra is also reshaping itself: stockholders approved the sale of its Colombian and Ecuadorian businesses on October 9, a deal valued at $1.33 billion in total consideration that the company says will leave it debt-free. Gran Tierra expects net cash proceeds of approximately $315 million, after which operations will focus on Canada and Azerbaijan.

Setting up 2027

Several producers used the quarter to frame next year. Magnolia Oil & Gas (NYSE: MGY), the largest company in the group, grew production 17% after closing its WildFire Energy acquisition, increased its buyback authorization by 15 million shares and expects 4% to 5% production growth in 2027. Talos now expects first oil from its Monument development in the first quarter of 2027, and Riley plans to begin developing the San Andres formation in the second quarter. Kosmos has secured a rig for a drilling campaign of up to 10 wells at Ghana’s Jubilee field starting in mid-2027. Granite Ridge’s CEO said the roll-off of its lower-priced 2026 hedges, anticipated production growth and a higher oil weighting build on its record quarter without relying on today’s oil prices.

What to watch

For investors, the distinction matters. Quarterly accounting gains and losses can obscure changes in production, leverage and the cash available to reinvest or return to shareholders. Comstock expects its SOCAR sale to close by year-end, and Gran Tierra’s divestiture is pending. The bigger test comes in 2027, when planned drilling programs and capital commitments begin translating into operating results.