On Apr 12, 2013, we upgraded our recommendation on Plains Exploration & Production to Outperform from Neutral. The company currently has a Zacks Rank #2 (Buy).
Why the Upgrade?
There are several growth factors, including the company’s strong liquidity position, asset rebalancing strategy, and liquid-rich profile, which encouraged us to improve our recommendation on the stock.
As of Dec 31, 2012, Plains Exploration & Production’s cash balance was $180.6 million and cash from operating activities was $1.3 billion in 2012. On Dec 31, 2012, the company’s outstanding borrowings and letters of credit outstanding under the revolving credit facility were $1.6 billion and $2.2 million, respectively.
The strong financial condition enables Plains Exploration & Production to spend $2.1 billion under its 2013 capital spending program excluding acquisitions. At present, the company is focusing on expanding and upgrading its existing high quality, low cost and high return assets apart from adding new ones. The company also continues with the development and drilling activities at the deepwater assets at the Gulf of Mexico, and properties in Eagle Ford Shale and California.
In addition, Plains Exploration & Production has completed a number of significant deals during 2012. To enhance coverage in the Gulf of Mexico, it acquired an oil and gas interest from BP plc (BP - Analyst Report) . The company also obtained a 50% working interest in the Holstein Field located in the Gulf of Mexico from Royal Dutch Shell plc (RDS.A - Analyst Report) .
The strong financial position also allows Plains Exploration & Production to enhance its shareholders’ value through share repurchase. In 2012, the company repurchased 2.4 million shares utilizing $88.5 million, which is part of a $1 billion authorization program valid up to Jan 2016.
Other Stocks to Consider
Apart from Plains Exploration & Production Company, another oil and gas company EPL Oil & Gas, Inc. is currently performing well and carries a Zacks Rank #1 (Strong Buy).
Houston-based Plains Exploration & Production Company engages in the acquisition, development, exploration and production of oil and gas properties, primarily in the United States.