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Plains Exploration & Production Company posted first-quarter 2013 pro forma earnings per share of $1.05, beating the Zacks Consensus Estimate by 16 cents and improving 81% from the year-ago results. The increase in earnings was primarily driven by an improvement in the top line.

On a GAAP basis, the company reported earnings per share of 17 cents versus a loss 64 cents a year ago. The variance between GAAP and pro forma earnings was due to a charge of $1.67 associated with unrealized loss on mark-to-market derivative contracts, debt extinguishment costs, and acquisition and merger related costs; partially offset by a 79 cents gain on investment measured at fair value, realized gain on mark-to-market derivative contracts and adjusted income taxes.

Revenue

Plains Exploration & Production’s revenues of $1.2 billion were 11.7% above the Zacks Consensus Estimate. Quarterly revenues increased 135% year over year on a 147.8% and 35.1% rise in Oil and Gas segments’ revenues, respectively. These positives were partially offset by a 58.7% year-over-year decline in revenues from Other Operating segments.

Increase in oil and gas revenues was primarily driven by strong contribution from the Eagle Ford Shale and addition of assets in the deepwater Gulf of Mexico.

First Quarter Operating Results

Daily sales volumes increased 94% year over year to 170,384 barrels of oil equivalent (Boe) per day. Average daily oil and liquids sales volume was 129,233 barrels of oil (Bbls), up 160.3% year over year.

Average realized hydrocarbon price, before derivative transactions, on a per Boe basis, was $80.26, up 23.2% year over year. An increase of 27% year over year in natural gas oil realized prices helped the company to offset a 3.7% decline in oil prices.

Operating expenses increased 136.5% year over year to $834.8 million primarily due to higher lease operating costs, and an increase in depreciation expenses.

Operating income increased 132% year over year to $397.3 million.

Financial Update

As of Mar 31, 2013, Plains Exploration & Production had cash balance of $54.3 million compared with $180.6 million as of Dec 31, 2012.

Long-term debt as of Mar 31, 2013 was $9.6 billion versus $10 billion as of Dec 31, 2012.

Net cash provided by operating activities during the first three months of 2013 was $818.7 million, significantly higher than $335.4 million in the year-ago comparable period.

Capital expenditures increased to $499.5 million from $418 million a year-ago due to the addition of oil and gas properties and leasehold acquisitions.

Other Energy Company Releases

Chesapeake Energy Corp. reported adjusted first quarter earnings of 30 cents per share, ahead of the Zacks Consensus Estimate of 24 cents.

Noble Energy Inc. reported adjusted earnings per share of $1.48 for the first quarter, surpassing the Zacks Consensus Estimate by 21.3%.

SM Energy Company's first-quarter adjusted earnings of 82 cents per share comfortably beat the Zacks Consensus Estimate of 51 cents.

Our View

We have identified several catalysts, including asset rebalancing strategy, liquid-rich profile, development of assets in the Eagle Ford Shale and expansion of operations in the Gulf of Mexico. We are hopeful of ample upside potential from these factors in the future.

However, uncertainties associated with switching to alternate energy from oil for power generation, and volatile commodity pricing, may challenge the company’s forthcoming margins.

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. The company currently has a Zacks Rank #3 (Hold).

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