Plains Exploration & Production Co. (PXP) posted fourth-quarter earnings of 20 cents per share, missing the Zacks Consensus Estimate of 30 cents and the year-ago profit of 61 cents.
The company’s full-year 2010 earnings of $1.06 per share were also below the Zacks Estimate of $1.15. Annual results of the company also came in below last year’s earnings of $1.98.
Operating Results
Net revenues of $408.1 million grew 3.8% (positive surprise) from the Zacks Consensus Estimate of $393 million. Also, revenue grew 11% from $367.7 million a year-ago, driven primarily by higher commodity prices and higher sales volumes. Strong drilling results in the Granite Wash, Haynesville, California and South Texas Eagle Ford accounted for the volume growth during the quarter.
Revenue for the full-year totaled $1.54 billion, marginally exceeding the Zacks Estimate of $1.53 billion and up 30% from the year-ago revenue.
In the fourth quarter, Oil Sales accounted for approximately 77% of the quarter’s revenues, while Gas Sales represented 23% of revenues. Annual revenue contributions included 74% from Oil Sales and 26% from Gas Sales.
Daily sales volumes of the company rose 7.6% to 93 thousand barrels of oil equivalent (MBoe) for fourth quarter 2010. Full-year daily sales volumes summed 88.5 MBoe compared with 82.7 MBoe in 2009.
Average realized hydrocarbon price, before derivative transactions, on “per barrel of oil equivalent (BOE) basis” was $47.66 for the fourth quarter and $47.77 for the full-year, up 3.2% and 21.7%, respectively.
Average realized oil prices were $73.17 per barrel (up 13.8%) in the quarter and $68.14 per barrel (up 32.5%) for the year. Realized gas prices in the quarter rose 11.2% to $3.66 per thousand cubic feet (MCF), while it witnessed a 15.3% growth reaching $4.29 per MCF for the whole year.
Plains’ total operating costs increased 18.3% to $315.6 million in the fourth quarter. Higher costs in the quarter were marked by higher per unit lease operating expenses (up 23.4%), electricity costs (up 7.1%), higher gathering and transportation costs (up 10.1%), offset by lower steam gas costs (up 44%) and production and ad valorem tax costs (down 13.6%). Full-year operating costs also rose 31% year over year to $1.2 billion.
Plains’ operating income for the quarter dipped 8.3% from the fourth quarter of 2009 to $92.6 million due to rising costs. Nevertheless, the company’s operating income for the year increased 27% year over year to $358.2 million despite higher costs.
Reserve Update
Plains’ year-end proved reserves totaled 416.1 million Boe, representing a growth of 16% from 2009. Of the company’s reserves about 54% were oil and 46% natural gas. The reserves were further categorized as being 57% developed and 43% undeveloped.
In 2010, Plains added total proved reserves of 98.5 million Boe, replacing about 302% of 2010 production at a cost of $17.69 per Boe. Finding and development costs, excluding acquisition costs which primarily reflect the Eagle Ford property acquisition, were $11.15 per Boe.
Financials
Plains’ balance sheet remained strong at quarter-end helped by its conservative financial strategy. The company ended the year with nearly $6.4 million of cash and cash equivalents. For the year, the company generated cash from operating activities of $912.5 million, an 83% increase over last year, with operating cash flows increasing 4% to $976.7 million.
Guidance
The company expects 2011 full year sales volumes to average 95,000 BOE to 100,000 Boe per day.
The total capital expenditure of the company is expected to be $1.2 billion, which includes capitalized interest and general and administrative expenses.
The full year DD&A expenses are expected to be $16.00 to $18.00 per Boe.
Our View
Despite poor earnings performance in the December quarter, we remain encouraged by the robust operating results and expect Plains to go from strength to strength by leveraging its generating assets that are likely to perform well in the coming years.
The company retains a short-term Zacks #3 Rank on the stock, which translates into a Hold rating. We maintain a long-term Neutral recommendation on Plains. The company stands at par with its closest peers Anadarko Petroleum Corporation (APC) and Pioneer Natural Resources Co. (PXD), based on the Zacks Rank.
Based in Houston, Texas, Plains Exploration & Production engages in the acquisition, development, exploration and production of oil and gas properties primarily in the United States.
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