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Plains Misses Quarterly Estimates

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Plains Exploration & Production Company posted first quarter 2012 pro forma earnings of 58 cents per share compared with 37 cents in the prior-year comparable quarter. Reported earnings were a penny lower than the Zacks Consensus Estimate.

The company’s first quarter 2012 GAAP loss was 64 cents per share versus earnings of 49 cents in the year-ago quarter. The variance between GAAP and pro forma earnings was due to realized and unrealized gains and losses on mark-to-market derivative contracts related to increased crude oil forward prices, and unrealized loss on investment on the common stock of McMoRan Exploration Company .  

Total Revenue

Plains Exploration & Production’s first quarter 2012 revenue increased 21.8% year over year to $524.3 million from $430.3 million in the year-ago quarter. The quarterly revenue missed the Zacks Consensus Estimate of $547 million.

Oil revenue increased $135.6 million to $467.5 million, reflecting higher average realized prices, strong contribution from the Eagle Ford Shale and California and higher crude oil sales volumes.

Quarterly Gas revenue decreased to $53.5 million in first quarter 2012 from $96.8 million in the year-ago quarter due to the sale of assets at Texas and Texas Panhandle, and planned lower production at the Haynesville Shale.

In the reported quarter, Other Operating segment revenue was $3.3 million, compared with $1.7 million in the prior-year comparable quarter.

In the reported quarter, Oil Sales accounted for approximately 89.2% of the company’s revenue, Gas Sales represented 10.2% of revenue, while other operating revenue made up the remaining 0.6%.

Operating Results

Daily sales volumes at Plains Exploration & Production decreased 0.1% year over year to 87,873 barrels of oil equivalent (“Boe”) per day in the first quarter of 2012. Average daily oil and liquids sales volume increased 12.8% year over year to 49,657 barrels per day.

Average realized hydrocarbon price, before derivative transactions, on a per Boe basis, was $65.16 in the first quarter 2012, up 20.4% year over year. A 23.6% year-over-year growth in oil realized prices helped the company to offset the 37.3% decline in natural gas prices to $2.56 per thousand cubic feet (“Mcf”).

On the cost side, Plains Exploration & Production’s quarterly operating costs increased 19% year over year to $353 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; partially offset by lower steam gas costs and a decline in oil and gas properties accretion.

Despite significant rise in costs, overall realized sales price growth raised Plains Exploration & Production’s operating income for the quarter to $171.3 million with an increase of 28%.

Hedging Position

The company has already hedged 70% of its 2012, 90% of its 2013 and 60% of its 2014 expected oil sales volume. On the other hand, 70% of its 2012 and 60% of its 2013 and 2014 projected natural gas sales volumes are hedged.

Financial Update  

Cash and cash equivalents as of March 31, 2012 were $365.3 million compared with $419.1 million as of December 31, 2011.

As of March 31, 2012, long-term debt was $3.84 billion versus $3.76 billion as of December 31, 2011.

In the first quarter of 2012, the company generated cash from operating activities of $335.4 million compared with $290 million in the prior-year quarter.

During first quarter of 2012, the company completed the purchase of 2.4 million common shares at an average price of $37.02 per share, totaling $88.5 million.


For fiscal 2012, Plains Exploration & Production reiterated its sales volumes guidance in the range of 92-96 thousand Boe per day. Increase in oil volume is expected to be more than offset by a decline in natural gas volume.  

At the Peer

Noble Energy, Inc. (NBL - Free Report) , a Plains Exploration & Production peer, announced adjusted earnings of $1.75 per share for the first quarter of 2012 versus $1.35 per share in the year-ago quarter. The quarterly earnings surpassed the Zacks Consensus Estimate of $1.42.

Noble Energy’s first quarter revenue was $1.2 billion versus $0.9 billion in the prior-year quarter. The reported revenue was above the Zacks Consensus Estimate of $1.1 billion.

Our View

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

We view Plains Exploration & Production Company as a well-positioned organization with its consistent attempts to acquire low-cost and high-quality assets, particularly onshore assets in the Haynesville Shale, the Eagle Ford Shale and California.

Along with this, the company has also received approval for the development of the Lucius project at Keathley Canyon in deepwater Gulf of Mexico and expects production to start from 2014. It also has a number of significant contracts in the Eagle Ford Shale and in California for fiscal 2012.

However, we are concerned about 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.

Based in Houston, Texas, 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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