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Michael Filloon, Split Rock (389 clicks)
Oil & gas, small-cap, research analyst, growth at reasonable price
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Given the difficult quarter for oil and gas, It was difficult to find companies that beat earnings. This list is focused on companies that outperformed. These are names I will be following closely through the second quarter of 2011.

Cabot Oil and Gas (COG) beat its earnings growth forecast by 66.7% in the first quarter of 2011. The company made 20 cents per share versus the Street's 12 cents. Its chart has been north of the 50 day moving average since November of last year. In 2010, Cabot had 31% reserve growth and 27% production growth. The company increased its Bcf per Marcellus horizontal well to 10, which is an improvement from 7.8 Bcf. Cabot has a $1.05/Mcfe finding cost. It has earned more then $100 million for the sixth year in a row. For 2011, Cabot guided for 33% production growth. Most of its 2011 $600 million capital program will be used in the Marcellus and Eagle Ford. With 60000 net acres in the Eagle Ford oil window, there is liquid upside. Earnings growth for 2011 is estimated at 14.3% and 69.6% for next year.

Swift Energy (SFY) beat the Street by 34.3% in the first quarter. The company earned 47 cents versus a forecast of 35 cents. I recommended this stock in early February here. Swift has four core areas of 2010 production:

  1. South Texas- 3.2 MMBoe of production and 76.6 MMBoe in proved reserves

  2. SE Louisiana-3.7 MMBoe of production and 21.2 MMBoe in proved reserves

  3. Central Louisiana and East Texas-.7 MMBoe of production and 20.9 MMBoe in proved reserves

  4. South Louisiana-.6 MMBoe of production and 14.1 MMBoe in proved reserves

Swift has an estimated earnings growth of 37% this year and 36.8% next.

Stone Energy Corp. (SGY) earned 81 cents per share in the first quarter. The company beat estimates of 63 cents per share. In 2010, Stone grew reserves from 68.5 to 79 MMBoe. Stone eliminated its $175 million of outstanding bank debt. In 2010, cash increased from $69 million to $113 million. The 2011 cap ex program is $425 million. It will fund projects with free cash flow. Stone will focus its Gulf of Mexico program in oily areas. The company projects 18 to 20 horizontal wells will be completed in 2011. Stone will begin testing its Rockies assets sometime this year. Estimated earnings growth is 46.2% in 2011 and 19.9% in 2012. Stone is a little different from other companies on this list as it derives a significant amount of revenue from the Gulf of Mexico.

Double Eagle Petroleum (DBLE) earned 45 cents per share in the first quarter compared to analyst estimates of a 1 cent loss. Double Eagle has had considerable speculation as to the value of its 70000 net Niobrara acres. It has proved reserves of 115.1 Bcfe. Double Eagle has current production of 25 Mmcfe/d. Average production costs over the past three years is $1.48/Mcfe. The company plans to drill 40 wells in 2011, and has a cap ex of $30 million. I have stayed away from natural gas producers, but there is a possible oil upside to Double Eagle's Niobrara acres. Estimates for this company are based on one analyst. This creates some uncertainty as to growth prospects. Double Eagle has estimated its implied net asset value to be between $213.5 and $481 million. If divided by the number of shares, this value is between $18.75 and $56.34. There is significant upside to this company if oil is discovered. Find more information on Double Eagle here. Careful with this name as it is a speculative name when compared to others on this list.

Range Resources Corp. (RRC) earned 22 cents per share versus estimates of 19 cents per share for the first quarter of 2011. The company has large resource potential:

  • Marcellus-20 to 31 Tcfe

  • Upper Devonian Shale-10 to 14 Tcfe

  • MidContinent Acreage-2 to 3 Tcfe

  • Nora Area-2.5 to 3 Tcfe

  • West Texas/New Mexico-.5 to 1 Tcfe

Range Resources has F&D costs of $.71 Mcfe. Lease operating costs are estimated to decrease to $.65 in 2011. Since 2005, production per share has a CAGR of 11%. Reserves per share has a CAGR of 21%. Current estimates have Range Resources growing production by 10% in 2011 and 25% to 30% in 2012. Its Utica shale has possibility of oil and condensate reserves. It has a cap ex of $1.38 billion in 2011. This is funded through cash flow and asset sales. Of that, 86% will be spent on the Marcellus. Its low production cost makes it an intriguing play. Range Resources has estimated earnings growth of 80.4% in 2011 and 57.4% in 2012.

Apache Corp (APA) beat first quarter earnings estimates by 12%. The Street was looking for $2.59, while Apache earned $2.90. It produces 729 MBoe/d and has grown 24% year over year. Some 50% of production is oil. Only 17% of revenue comes from North American natural gas. Apache has $8 billion in cash flow (fourth quarter of 2010 annualized). Production growth f 13% to 17% is expected in 2011. Cap ex for 2011 is $7.5 billion, which is well below cash flow. Apache plans to divest from approximately $1 billion of leaseholds. Some will be used on new projects and debt reduction. Analyst earnings growth for Apache is 33.4% in 2011 and 11.4% in 2012. For a more detailed article that includes a discussion of Apache please go here.

Pioneer Natural Resources (PXD) recorded earnings per share of 68 cents versus analyst estimates of 51 cents. Pioneer beat by 33.3%. Pioneer is estimating 18% or better CAGR from 2011 to 2013. From 2010 to 2013, it estimates liquids production will increase from 44% to approximately 53%. Estimated 2011 cap ex is $1.6 billion. With $1.1 billion to be spent on Spraberry. Capital program will be funded by $1.5 billion of cash flow and sale of Tunisian sale. Pioneer estimates cash flow of $2.1 billion in 2012. Operating cash flow has an estimated CAGR from 2010 through 2013 of over 30%. Pioneer's strength is in the Permian. It has 20000 drilling locations and 6500 operated wells. Pioneer has 32 rigs operating in the Spraberry, nine in the Eagle Ford and two in Barnett. Analysts estimate Pioneer will grow earnings 100% in 2011 and 47.7% in 2012.

EOG Resources (EOG) beat first quarter earnings by 25.9%. EOG reported 68 cents/share versus street expectations of 54 cents. EOG's is shifting from gas to liquids production. It moved early on new liquids-dominated horizontal locations. EOG states it has 1.8 Bnboe of potential reserves in new found horizontal oil inventory. These locations are 69% oil and 18% NGLs. EOG looks to be cash flow neutral this year, plus has $1 billion of divestitures planned. It has sold off $647 million year to date. EOG plans to generate strong organic liquids growth with 33% last year and 49% estimated in 2011. EOG has a capital program of $6.4 to $6.6 billion. Some 80% will be spent on liquids. In 2006, it produced 21% liquids. By 2012, liquids production will increase to 74%. This is one of my favorite large companies. Analysts estimate EOG will grow earnings 306.5% in 2011 and 64.2% in 2012.

Brigham Exploration (BEXP) earnings beat estimates by 16%, or 4 cents per share. For the fourth straight quarter, Brigham beat expectations.

  • Q2 2010-Earnings beat by 44.4%

  • Q3 2010-Earnings beat by 50%

  • Q4 2010-Earnings beat by 33.3%

  • Q1 2011-Earnings beat by 16%

Brigham's mark to market hedging losses, reduced its 29 cents per share in earnings to 1 cent per share. These losses reduced its $76 million in revenue to $40 million. On paper this looked to be a large miss, but in reality it is the opposite. Brigham receives a large portion of its revenue from the Bakken. A difficult winter that slowed trucks hampered its ability to get oil from the well. Brigham was priced for perfection, so a pullback is understandable in this case. Shares offer the first buying opportunity since October. Analysts estimate Brigham will grow earnings 130% in 2011 and 60.1% in 2012.

These companies have beat earnings, in what has been a difficult quarter for oil and gas producers. Its been a while since the bears have had luck in this space. Be careful, as this could continue for a while. I was in 50% cash and used some of this to start a position in BEXP and NOG. I had gotten out of part or all of some speculative names. For a more conservative investment that would have less downside in the short term, EOG and PXD are intriguing. For other oil and gas producers that had a good first quarter read Significant Turnaround for 11 Oil Companies.

Disclosure: I am long BEXP, NOG.

Additional disclosure: Source: Yahoo FinanceSource: ZeccoSource: Cabot Oil and Gas (COG) Source: Swift Energy (SFY) Source: Stone Energy (SGY) Source: Range Resources Corp. (RRC) Source: Apache (APA) Source: EOG Resources (EOG) Source: Brigham (BEXP) Source: Pioneer Natural Resources (PXD)

This is a list of oil and gas stocks that have had a very good Q1 of 2011. It is only a list and not a buy recommendation. Investments in stocks can decrease in value a significant amount in a short period of time. Before investing study the stock of interest, to make sure you have all the information. Please email me with any questions.

Continue to Part 2 >>

Source: Bad Quarter for Oil and Gas Stocks? Not for These 9 Companies Part 1