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Plains Exploration & Production Company posted third-quarter 2012 pro forma earnings of 39 cents per share, in line with the Zacks Consensus Estimate. However, quarterly earnings were lower than the year-ago figure of 45 cents per share.

The company’s third-quarter 2012 GAAP loss was 41 cents compared with 62 cents in the year-ago quarter.

The variance of 80 cents per share between pro forma earnings and GAAP loss was due to 77 cents unrealized loss from mark-to-market derivative contracts, 12 cents realized loss from mark-to-market derivative contracts, 32 cents unrealized loss on investment measured at fair value, and acquisition related charges of 5 cents. This was partially offset by a gain of 46 cents from income tax adjustments.

Total Revenue

Plains Exploration & Production’s third-quarter 2012 revenue increased 21.0% year over year to $605.1 million from $501.8 million in the year-ago quarter. The quarterly revenue beats the Zacks Consensus Estimate of $602.0 million.

In the reported quarter, Oil segment revenue increased to $540.4 million compared with $379.1 million in year-ago quarter. This was driven by higher crude oil sales volumes due to strong contribution from the Eagle Ford Shale and steady performance from California.

Quarterly Gas segment revenue decreased to $62.6 million in third-quarter 2012 from $121.0 million in the year-ago quarter due to the sale of few assets and 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 $2.0 million compared with $1.8 million in the prior-year comparable quarter.

Operating Results

Daily sales volumes at Plains Exploration & Production increased to 105,550 barrels of oil equivalent (“Boe”) per day in the third quarter of 2012 from 104,438 Boe per day in the year-ago quarter. Quarterly average daily oil and liquids sales volume was 63,548 barrels of oil (“Bbls”), up from 50,891 Bbls in the prior-year quarter.

Average realized hydrocarbon price, before derivative transactions, on a per Boe basis, was $62.10 in third-quarter 2012, up from $52.05 in a year-ago quarter. A growth of 14.2% year over year in oil realized prices helped the company to offset 34.1% decline in natural gas prices to $2.70 per thousand cubic feet (“Mcf”).

On the cost side, Plains Exploration & Production’s quarterly operating costs increased to $473.3 million from $333.3 million in the year-ago quarter. The increase in costs was due to higher lease operating expenses, 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 and electricity costs, and a decline in oil and gas properties accretion.
    
In the quarter under review, Plains Exploration & Production’s operating income was $131.8 million compared with $168.6 million in the year-ago quarter.    

Financial Update  

Cash and cash equivalents as of September 30, 2012 were $217.0 million compared with $419.1 million as of December 31, 2011.

As of September 30, 2012, long-term debt was $4.5 billion versus $3.8 billion as of December 31, 2011.

In the third quarter of 2012, the company generated cash from operating activities of $415.6 million compared with $345.2 million in the prior-year quarter.

Guidance

For full-year 2012, Plains Exploration & Production increased its sales volume guidance to approximately 103 thousand barrel of oil equivalent per day (“MBoe/d”) from the previous guidance of 95 – 97 MBoe/d. This revision was driven by higher-than-expected sales volume from the Eagle Ford Shale.

At the Peer

Plains Exploration & Production’s peer Noble Energy Inc. (NBL - Analyst Report) announced adjusted earnings of 93 cents per share for the third quarter of 2012 versus $1.01 per share in the year-ago quarter. The quarterly earnings lagged the Zacks Consensus Estimate of $1.04.

Noble Energy’s third-quarter 2012 revenue was $1,006.0 million versus $879.0 million in the prior-year quarter, but below the Zacks Consensus Estimate of $1,054.0 million.

Our View

Plains Exploration & Production Company’s third-quarter 2012 earnings came in line with the Zacks Consensus Estimate, but revenue surpassed estimate primarily due to strong performance from Eagle Ford Shale.

We appreciate Plains Exploration & Production’s strong balance sheet and liquidity position, strong asset rebalancing strategy, higher realized oil prices, liquid-rich profile, and development of onshore assets in California along with the Eagle Ford Shale, which offer ample upside potential over the longer term.  

However, we are cautious about uncertainty associated with volatile commodity prices, unexpected natural disasters, unfavorable drilling results and regulatory restrictions.

Plains Exploration & Production Company currently has short-term Zacks #3 Rank (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. With a market capitalization of $4.71 billion, the company has 880 full time employees.

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