Plains Exploration (PXP) and Continental Resources (CLR) are two domestic U.S. exploration and production companies. Both companies reported strong first-quarter operating results and held their conference calls yesterday. Plains stock rose on the day and Continental was crushed. The valuation difference is remarkable.
Plains' had operating revenue of $524.3 million driven by production of 87,873 Boepd. Continental had similar revenue of 535.3 million on 85,526 Boepd. Plains receives a higher price for their oil production as it is priced of Brent, while Continental has half of its land-locked Bakken production discounted to the WTI benchmark. This is offset by Plains being 54.4% oil weighted while Continental had 70.0% of production as oil.
Plains expects full-year production to be in the range of 92-96 thousand BOE per day. Continental's guidance is near 91-93 thousand BOE per day.
One outstanding part of Plains' press release:
In the Eagle Ford Shale, first-quarter daily sales volumes averaged 13,908 BOE per day net to PXP compared to fourth-quarter 2011 average daily sales volumes of 9,123 BOE per day net to PXP. In March daily sales volumes averaged 15,154 BOE per day net to PXP. In April average daily sales volumes were in excess of 19,000 BOE per day net to PXP. The Company expects to exit the year above 26,000 BOE per day. Initial production rates on recently completed wells are as follows: The Jendrusch 1H achieved a peak rate of 3,168 gross BOE per day (100% working interest). The Love 1H achieved a peak rate of 2,222 gross BOE per day (100% working interest). The Love 2H achieved a peak rate of 2,122 gross BOE per day (100% working interest). At the end of April, PXP had 8.1 net drilling rigs operating on its acreage compared to 6.9 net rigs at the end of January 2012. Along with a higher number of rigs operating, drill times are improving with fewer average days spent on drilling. With more rigs operating and improved drill times, the number of wells drilled but waiting on completion or connection to pipelines was 31 wells.
One outstanding part of Continentals' press release:
Continental experienced strong year-over-year production growth across its three principal operating areas, the Bakken, Anadarko Woodford, and the Red River Units of Montana, and North and South Dakota. Bakken production increased 88 percent to 48,024 Boepd in the first quarter of 2012, compared with 25,523 in the first quarter of 2011. Production in the North Dakota Bakken was 41,895 Boepd in the first quarter of 2012, a 107 percent increase over production of 20,238 in the first quarter of 2011. Montana Bakken production increased 16 percent to 6,129 Boepd in the first quarter of 2012, compared with the first quarter of 2011. The Company's Anadarko Woodford production was 12,826 Boepd, nearly five times higher than production of 2,685 Boepd in the first quarter of 2011.
Plains ended the first quarter with $3.8 billion in long-term debt to Continental's $1.9 billion. Plains did have $300 million more than Continental in cash on hand. Both companies came to the bond market recently for similar amounts, with the different debt levels being reflected in Plains paying 125 basis points more on slightly shorter duration notes.
Both companies have strong growth prospects over the short, intermediate and long term. Perhaps Plains equity should trade at a slight discount to Continental because of the higher debt load. Perhaps not, given the superiority of Plains' low-cost California oil operations and the Eagle Ford being better than the Bakken. Regardless, Plains' market cap of $5.2 billion compares favorably with Continental's $15 billion market cap. The investor could consider Plains stock. The speculator might consider a pairs trade.