Plains Exploration & Production Co. (PXP) posted second-quarter 2011 operating earnings of 54 cents per share, beating the Zacks Consensus Estimate of 52 cents and the year-ago profit of 26 cents. The company excelled in the quarter due to higher production levels as well as better price realizations.
Operating Results
Net revenues of $514.8 million grew 41.2% from $364.6 million in the year-ago quarter. Oil revenues increased about $123 million reflecting higher average realized prices, benefiting from California crude postings and higher sales volumes. Gas revenues increased nearly $26 million, reflecting higher sales volumes and higher average realized prices.
In the quarter, Oil Sales accounted for approximately 77% of the company’s revenues, Gas Sales represented 22% of revenues, while other operating revenues made up for the remaining 1%.
Daily sales volumes at Plains Exploration and Production grew 15% year over year to 97.7 thousand barrels of oil equivalent (MBoe) for the second quarter of 2011. Average daily liquids sales volume increased 7% compared to the second quarter of 2010.
Average realized hydrocarbon price, before derivative transactions, on per barrel of oil equivalent (BOE) basis was $57.68 in the second quarter 2011, up 22.6% year over year. This improvement came on the back of a 35.2% increase in crude oil realizations, which reached $90.42 per barrel in the quarter, together with a 3.4% rise in gas realizations which came in at $4.23 per thousand cubic feet (Mcf).
On the cost side, Plains Exploration and Production’s operating costs showed an increase of 4.4%, marked by significantly higher per unit lease operating expenses (up 24%), higher production and ad valorem tax costs (up 287.8%) and higher gathering and transportation costs (up 13.2%), offset by lower steam gas (down 4.5%) and electricity costs (down 18.8%).
Despite the significant rise in costs, Plains Exploration and Production’s operating income for the quarter shot up 273.7% from the second quarter of 2010 to $186.1 million.
Financials
Plains Exploration and Production’s balance sheet remained strong at quarter-end helped by its conservative financial strategy. As of June 30, 2011, the company had nearly $5.3 million of cash and cash equivalents and $3.6 billion in long-term debt.
In the second quarter, the company generated cash from operating activities of $287.5 million, a 13.8% increase over last year, with operating cash flows increasing 41.1% to $299.6 million.
Guidance
For 2011, Plains Exploration and Production now expects its sales volumes in the range of 97-100 MBoe/d, mainly due to higher drilling activity year-to-date than originally planned in the Haynesville and the Eagle Ford.
Given the heightened activity in Haynesville and the Eagle Ford, Plains has approved an increase in capital spending to the tune of approximately $1.5 billion for 2011, excluding deepwater spending, up from $1.2 billion.
Plains expects its oil price realization for the full year 2011 to be above the guidance range due to continued strength of California crude oil pricing relative to NYMEX West Texas Intermediate. It also expects lease operating expense per BOE to be at the higher-end of the full-year 2011 guidance range of $7.90 – $8.30 per BOE due to the increased activity in the Eagle Ford.
Our View
In August, Plains entered a new marketing contract with ConocoPhillips (COP) for its California crude production. Currently, PXP sells about 65% of its crude oil to ConocoPhillips. The new contract covers approximately 90% of PXP's California production and would extend over the period from January 1, 2015 to January 1, 2023.
We expect the company to benefit from this new marketing contract, realizing better prices for hydrocarbons going forward.
Plains Exploration & Production retains a short-term Zacks #3 Rank on the stock, which translates into a Hold rating. We maintain a long-term ‘Neutral’ recommendation on Plains.
Based in Houston, Texas, Plains Exploration & Production engages in the acquisition, development, exploration and production of oil and gas properties primarily in the United States.
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