Approach Resources (AREX -13.2%) plunges as disappointing well results outweigh better than expected Q2 earnings and production.
Q2 natural gas and natural gas liquids volumes topped internal projections while oil output continues to track the type curve, and AREX increased its 2014 production guidance by 3%, but 24-hour initial production rates fell substantially Q/Q due to changes in completion design.
Mizuho maintains its Neutral rating on AREX while lowering its price target by $1 to $20, as acreage quality and per-well rates of return are below peers (Briefing.com).
Approach Resources (AREX +2.2%) is upgraded to Accumulate from Neutral with a $25 price target, up from $20, at Global Hunter, which believes the worst days are now in the rear-view mirror.
AREX's current valuation combined with its asset base, while not capable of the 100% internal rate of return its northern Midland peers possess, still provides 40% IRRs over two prospective zones across a wide swath of continuous acreage, Hunter says.
Most important, the firm says, is that AREX's efficiency gains have stepped up considerably in FY 2014, which should translate to a notable improvement in production growth per debt adjusted share.
There's ample reason to expect some consolidation among the patchwork quilt of small U.S. exploration and production companies drilling for oil, Barron's writes, focusing on two stocks that could rise at least 50%.
A buyer could pay up for Northern Oil & Gas' (NOG -3.7%) cash flow, broad acreage holdings, and its knowledge of multiple operators in the Bakken Shale; using NOG's enterprise value of ~$1.5B, it trades at just 5.4x trailing EBITDA, while larger Bakken peers are trading at ~9x.
Another attractive buyout candidate is Approach Resources (AREX +0.4%), which owns some of the cheapest reserves in the Permian Basin; AREX's assets likely are worth a good deal more given the rich price recently paid by Sinochem for a 40% stake in Permian player Pioneer Natural.
Pioneer Natural Resources (PXD) Wednesday announced that severe winter weather in Texas has significantly impacted the company's production and drilling operations in the Spraberry/Wolfcamp, Eagle Ford Shale and Barnett Shale Combo plays.
Commenting, analyst Gordon Douthat of Wells Fargo said, "PXD did not revise production guidance at this point as the company is still assessing impacts across its operations, but will provide an update once impact can be quantified. Production downtime will vary by company with some stating only 12 days of downtime and others stating more substantial downtime."
Douthat said impacts will likely be felt by all Permian operators including Concho Resources (CXO), Laredo Petroleum Holdings (LPI), Athlon Energy (ATHL), Diamondback Energy (FANG), Approach Resources (AREX) though more time is needed to fully quantify the extent.
Pioneer Natural Resources (PXD +0.1%) warned late Wednesday that severe winter weather in Texas has significantly impacted production and drilling operations in the Spraberry/Wolfcamp, Eagle Ford shale and Barnett shale plays in the state, and analysts expect PXD to revise down its production guidance in the coming weeks.
PXD has said it expects production to average 179K-187K boe/day in Q4.
Topeka Capital keeps its Hold rating but cuts its price target on the stock to $210 from $225, while Global Hunter calls the news "more of a short-term nuisance than a long-term threat."
PXD shares have gained 66% YTD, the most among energy stocks in the S&P 500, as Permian plays have been hot.
Other Permian names are mixed today: CXO -0.2%, FANG -0.6%, LPI -1.7%, ATHL +1.4%, AREX +0.5%.
Approach Resources (AREX -10.3%) is downgraded to Neutral from Buy with a $30 price target at Goldman Sachs, which cites disappointing guidance.
In its Q3 report yesterday, AREX cut its 2013 output outlook to 9.3K boe/day, -6% from the low end of previous guidance of 9.9K-10.7K boe/day due to the timing of completions; preliminary 2014 guidance of 40% growth, implying 13K boe/day, is well below the firm's expectations of 14.4K.
Meanwhile, 2013 capex increased to $300M from $260M, and the initial 2014 E&D budget was pegged at $400M vs. the firm's $330M estimate on higher costs and more wells but with less productivity.
Approach Resources, Inc., is an independent energy company engaged in the exploration, development, production and acquisition of unconventional natural gas and oil properties in Midland Basin of the greater Permian Basin in West Texas.