Plains Exploration & Production Company (PXP) is seeing production volumes pick up in the Haynesville Shale even as crude and natural gas prices remain far below 2008 prices. The company trades with a forward P/E of 9.02.
Company Description
Plains Exploration & Production is an independent oil and natural gas company with operations in California, the Rockies, the Gulf Coast, the Gulf of Mexico, the Texas Panhandle, South Texas, the Permian Basin of the United States and offshore Vietnam.
On Sep 8, the company announced it had completed the sale of $400 million of 8.625% Senior Notes that will mature Oct 15, 2019. The notes were sold to the public at 98.335% of the face value to yield 8.875% to maturity.
Plains expects to use the money for general purposes, including to fund a portion of the payment of the remaining drilling carry in the agreement with Chesapeake Energy Corporation (CHK).
Plains Blows By Second Quarter Estimates by 323.53%
On Aug 6, Plains Exploration & Production reported second quarter results that saw earnings per share of $1.44, well above the Zacks Consensus Estimate of 34 cents.
Plains Exploration and its partner, Chesapeake, drilled and completed 74 horizontal wells in the Haynesville Shale in the second quarter.
The company also announced an amendment to its joint venture agreement with Chesapeake Energy that allows Plains to pay the remaining Haynesville Shale drilling carries, originally agreed to in July 2008. Plains will get a reduction by paying earlier.
Plains will pay $1.1 billion of an estimates $1.25 billion carry balance on Sep 29, 2009. This is a 12% reduction in the total amount of drilling carry commitments originally due to Chesapeake.
For the next 3 years, Chesapeake will do minimum drilling of 150 wells each year after which both companies will pay each of their proportionate working interest on costs on future drilling.
Plains expects this amendment to result in a production growth rate of 8-10% in 2010 and more than 10% in 2011.
Daily sales volumes declined to 80.6 thousand BOE compared to 87.5 thousand BOE for the second quarter of 2008. Lower volumes are due primarily to 2008 divestments. Excluding divestments, sales volumes rose 9% year over year due to higher production from the Flatrock and Haynesville Shale properties.
Daily sales volumes for the second quarter 2009 were 80.6 thousand BOE compared to 87.5 thousand BOE for the prior year period. Lower volumes primarily reflected the impact of the 2008 divestments.
Excluding divestments, higher production from the Flatrock and Haynesville Shale properties is primarily responsible for a 9% increase in sales volumes in the second quarter 2009 compared to the same period a year ago.
2009 Outlook
The company increased its capital budget in 2009 to $1.4 billion from $1.05 billion reflecting Plains participation in additional Haynesville Shale wells. It also reaffirmed its previous guidance on daily sales volumes between 78 to 82 thousand BOE.
2009 Zacks Consensus Estimate Soars
The Zacks Consensus Estimate for the third quarter looks a bit tricky. It went from 39 cents a month ago to 62 cents and then to 53 cents per share in the last week.
Analysts are more optimistic about the full-year estimate after the blow out second quarter.
The 2009 Zacks Consensus Estimate surged 161.03% to $3.03 from $1.87 per share in the last month.
Value Fundamentals
Plains Exploration is a Zacks #1 Rank (strong buy) stock. It has a price-to-book of just 1.23. The company also has an outstanding 5-year average return on equity (ROE) of 18.23%.
