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Plains Exploration Posts Mixed 4Q

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Plains Exploration & Production Company posted fourth-quarter 2012 pro forma earnings of 41 cents, missing the Zacks Consensus Estimate by 12 cents. However, quarterly earnings were 105% higher than the prior-year results owing to an improvement in the top line.

On a GAAP basis, the company reported earnings of $1.65 per share versus 69 cents per share in the year-ago quarter. The variance between GAAP and pro forma earnings was due to a $2.26 unrealized gain on investment measured at fair value; partially offset by a charge of $1.02 associated with unrealized and realized loss on mark-to-market derivative contracts, debt extinguishment costs, acquisition and merger related costs, bridge loan facility commitment fees and related expenses, and adjusted income taxes.

The company’s 2012 pro forma earnings of $1.74 per share missed the Zacks Consensus Estimate by 8.4%. Full-year earnings were however 12.3% higher than the prior year.

In full-year 2012, the company’s GAAP earnings were $2.32 per share compared with $1.44 a year ago.

Total Revenue

Plains Exploration & Production’s quarterly revenue of $869.2 was 19% above the Zacks Consensus Estimate. Revenues increased 68% year over year on a 91% rise in the Oil segment revenue to $798.5 million backed by strong contribution from the Eagle Ford Shale and steady performance from California. The growth was partially offset by 27.3% and 83.8% year over year declines in the revenues from the Gas and Other Operating segments, respectively.

The company’s 2012 revenue was $2.6 billion, up 30% from the prior-year revenue of $2.0 billion.

Operating Results

Daily sales volumes of Plains Exploration & Production increased 26.1% year over year to 132,911 barrels of oil equivalent (Boe) per day in fourth-quarter 2012. Quarterly average daily oil and liquids sales volume was 93,043 barrels of oil (Bbls), up 78% from 52,262 Bbls in the prior-year quarter.

Average realized hydrocarbon price, before derivative transactions, on a per Boe basis, was $71.05 in the fourth quarter, up 33.7% year over year. An increase of 7.2% year over year in oil realized prices helped the company to offset a 3.3% decline in natural gas prices.

On the cost side, the company’s quarterly operating costs increased 66.6% year over year to $692.2 million 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. The increase was partially compensated by lower steam gas costs.

Despite higher expenses, revenue growth was aided by a 73.5% year-over-year improvement in the operating margin, which was $177 million in the quarter.

Financial Update  

Cash and cash equivalents as of Dec 31, 2012 were $180.6 million compared with $419.1 million as of Dec 31, 2011.

As of Dec 31, 2012, long-term debt was $9.98 billion versus $3.76 billion as of Dec 31, 2011.

Net cash provided by operating activities for the twelve months ended Dec 31, 2012 was $1.3 billion, higher than $1.1 billion in the year-ago comparable period.

Capital expenditure for the year increased to $1.91 billion from $1.86 billion in 2011. The increase was due to the addition of oil and gas properties and leasehold acquisitions.

Other Energy Company Releases

Anadarko Petroleum Corporation (APC - Free Report) posted fourth-quarter 2012 net earnings from continuing operations of 91 cents per share, beating the Zacks Consensus Estimate by 30% but decreasing 7% year over year.

Noble Energy Inc. (NBL - Free Report) reported adjusted earnings per share of $1.65 for the fourth quarter 2012, beating the Zacks Consensus Estimate of $1.07 with ease. The quarterly results increased 6.4% from the year-ago earnings of $1.55.

Devon Energy Corp. (DVN - Free Report) reported fourth-quarter 2012 adjusted earnings per share of 78 cents, a penny above the Zacks Consensus Estimate. However, the results were 49.7% lower than the prior-year quarter.

Our View

Plains Exploration & Production Company’s fourth-quarter earnings missed the Zacks Consensus Estimate, but revenue surpassed the same primarily on a strong performance at the Eagle Ford Shale.

Positive catalysts for the company are its strong balance sheet and liquidity position, asset rebalancing strategy, liquid-rich profile, and development of onshore assets in California and the Eagle Ford Shale. We are hopeful of ample upside potential from these in the near term.

However, we are skeptical about uncertainties associated with switching to alternate energy from oil for power generation, and prevailing production curtailment in the manufacturing sector and power generation, which may challenge 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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