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Plain Misses Est, Revs Down

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Plains Exploration & Production Company posted second-quarter 2012 pro forma earnings of 35 cents per share, lagging the Zacks Consensus Estimate of 66 cents per share and the year-ago figure of 54 cents per share.

The company’s second-quarter 2012 GAAP earnings was $1.70 per share versus 87 cents in the year-ago quarter.

The variance of $1.35 per share between pro forma and GAAP earnings was due to $1.69 unrealized gain on mark-to-market derivative contracts and 66 cents unrealized gain on investment measured at fair value. This was partially offset by a charge of 14 cents from realized gain on mark-to-market derivative contracts, 4 cents charge as debt extinguishment costs and 82 cents charges from income tax adjustments.  

Total Revenue

Plains Exploration & Production’s second-quarter 2012 revenue increased 10.1% year over year to $566.7 million from $514.8 million in the year-ago quarter. The quarterly revenue missed the Zacks Consensus Estimate of $578 million.

In the reported quarter, Oil segment revenue increased to $519.5 million compared with $399.3 million in year-ago quarter. This was driven by higher crude oil sales volumes, strong contribution from the Eagle Ford Shale and California, and higher average realized price.

Quarterly Gas segment revenue decreased to $46 million in second-quarter 2012 from $113.7 million in the year-ago quarter due to the sale of assets at South Texas and Texas Panhandle in December 2011, and planned production cut-back at the Haynesville Shale. These negatives were partially offset by higher production from the Eagle Ford Shale.

In the reported quarter, Other Operating segment revenue was $1.3 million compared with $1.8 million in the prior-year comparable quarter.

Operating Results

Daily sales volumes at Plains Exploration & Production inched up 0.6% year over year to 98,336 barrels of oil equivalent (“Boe”) per day in the second quarter of 2012. Average daily oil and liquids sales volume increased 23.2% year over year to 59,780 barrels per day.

Average realized hydrocarbon price, before derivative transactions, on a per Boe basis, was $63.19 in second-quarter 2012, up 9.5% year over year. A growth of 9.6% year over year in oil realized prices helped the company to offset the 48.5% decline in natural gas prices to $2.18 per thousand cubic feet (“Mcf”).

On the cost side, Plains Exploration & Production’s quarterly operating costs increased 31.2% year over year to $431.2 million. The increase in costs was due to higher lease operating expenses, electricity costs, production and ad valorem tax costs, gathering and transportation costs, general and administrative expenses, and depreciation, depletion and amortization expenses. This was partially offset by lower steam gas costs and a decline in oil and gas properties accretion.

In the quarter under review, Plains Exploration & Production’s operating income was $135.6 million compared with $186.1 million in the year-ago quarter.

Financial Update  

Cash and cash equivalents as of June 30, 2012 were $302.2 million compared with $419.1 million as of December 31, 2011.

As of June 30, 2012, long-term debt was $3.9 billion versus $3.8 billion as of December 31, 2011.

In the second quarter of 2012, the company generated cash from operating activities of $348.5 million compared with $299.6 million in the prior-year quarter.

Guidance

For full-year 2012, Plains Exploration & Production increased its sales volume guidance in the range of 95 – 97 thousand barrel of oil equivalent per day (“MBoe/d”) from the previous guidance of 92 – 96 MBoe/d.

For full-year 2012, the company reported total capital expenditure of $1.6 billion.

For full-year 2012, the company’s general and administrative expenses will be in the range of $147 million - $157 million.  

At the Peer

Noble Energy Inc. (NBL - Analyst Report), a Plains Exploration & Production peer, announced adjusted earnings of 77 cents per share for the second quarter of 2012 versus $1.44 per share in the year-ago quarter. The quarterly earnings lagged the Zacks Consensus Estimate of 98 cents.

Noble Energy’s second-quarter revenue was $966 million versus $842 million in the prior-year quarter, but below the Zacks Consensus Estimate of $1,018 million.

Our View

Plains Exploration & Production Company’s results in the second quarter failed to meet our expectations due to a strong decline in Gas revenue.

We believe Plains Exploration & Production’s continuous divestment and acquisition strategy will enable it to rebalance its portfolio, which subsequently improves its financial performance.

However, we are concerned about regulatory restrictions, unexpected natural disasters, and volatile oil and depressed natural gas prices.

Plains Exploration & Production Company currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Houston, Texas-based Plains Exploration & Production Company engages in the acquisition, development, exploration and production of oil and gas properties, primarily in the United States.

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