Bad Quarter for Oil and Gas? Not for these Nine Companies Part 2

by: Michael Filloon

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The first quarter of 2011 was tough on oil and gas producers. Some companies outperformed significantly. Nine companies were able to manage these problems and had operational success.

EXCO Resources (NYSE:XCO) beat first quarter analyst earnings estimates by 18.2%. It made 13 cents per share as opposed to the 11 cents expected. XCO is determined to stick with its natural gas business. While others are shifting to higher margin oil, XCO will continue to be weighted heavy in gas. Year over year revenues are up 20%. Average daily production increased 17% and cash flow increased 7% over the same time frame. XCO operates in three locations:

  1. Permian-Production of 21 Mmcfe/d
  2. East Texas-Production of 430 Mmcfe/d
  3. Appalachia-Production of 32 Mmcfe/d

XCO continues to emphasize Haynesville/Bossier horizontals with 22 rigs running. I am cautious this name and will continue to be until they increase production in the Permian. This is a liquids rich acreage with good upside for XCO. Analysts estimate earnings growth of 10.9% in 2011 and 42.3% next year.

Anadarko Petroleum (NYSE:APC) beat earnings estimates by 24.1%. It had quarterly earnings of 72 cents/share versus an estimated 58 cents/share. Anadarko estimates from 2010 through 2014, it will have a production CAGR of 7% to 9%. Much of its growth is coming from United States shale plays. Ten percent of total company sales volumes are from shales. From the beginning of 2010 through the end of this year, it estimates shales will produce a CAGR in sales growth of over 100%. It plans to spend 45% of its capital on United States shale plays this year. Anadarko had $3.7 billion in cash at the end of 2010. The geography of its leaseholds are:

  • 3 million acres in the Gulf of Mexico
  • 1 million acres in Brazil
  • 7 million acres in West Africa
  • 14 million acres in East Africa
  • 6 million acres in Southeast Asia
  • 7 million acres in New Zealand

Analyst estimates for 2011 have it growing 72.5% this year and 31.2% next.

Noble Energy (NYSE:NBL) beat earnings estimates by 18.4%. It earned a $1.35 per share versus an estimated $1.14. Most was from an increase in sales volumes in the first quarter. Noble realized a 31.1% growth in oil pricing in the first quarter. Crude oil and condensate revenue increased 39.8% year over year. Increased liquids production and higher realized prices should continue to increase earnings. It hopes to further increase liquids production from 830000 net acres in the DJ Basin of the Niobrara. Noble's numbers earnings were effected by commodity derivatives losses and rig standby charges. This decreased its earnings to 8 cents/share. Analysts estimate earnings growth in 2011 to be 15.6% and 38.1% in 2012.

Callon Petroleum (NYSE:CPE) beat earnings estimates by 300%. First quarter EPS was 12 cents versus estimates of 3 cents. Callon is a play on the Permian. Callon has a frac stimulation agreement with Halliburton (NYSE:HAL), which has increased its ability to increase production. The small increase in production was helped significantly by realization of higher oil prices. Oil revenue increased 13% although production slipped 10%. Proved reserves are divided by location:

  • Gulf of Mexico-50%
  • Permian-33%
  • Haynesville-17%

Sixty percent of proved reserves are oil. Callon is an interesting company. They are developing land oil and gas leaseholds using cash flow from its Gulf of Mexico production. Its Wolfberry acres (6641 net acres) have significant upside. It is possible the Permian will provide 298 locations. Callon is a speculative name, but first quarter numbers give reason to be optimistic. Analysts estimate 2011 earnings growth of 21.4% and 105.9% in 2012.

Miller Petroleum (NYSE:MILL) beat earnings by 128.6%. Analysts expected a loss of 7 cents per share. Miller had EPS of 2 cents. Year over year, revenues were up from $6.6 million to $7.8 million. Miller has increased revenue through increased oil production from its Alaskan properties. It is increasing production by 5000 barrels per month. Realized oil pricing increased 24.9% year over year to $90.99/barrel. Miller could be a significant value. It's cheap acquisition in Alaska seemed to be a great deal for Miller. I wrote about this company and its prospects here. Analysts estimate Miller will decrease EPS by a negative 102.8% in 2011. In 2012, these earnings will increase by 26.1%.

Murphy Oil Corp. (NYSE:MUR) beat earnings by 38%. It had an EPS of $1.38, while analysts were expecting $1.00. Murphy had several reasons for the good quarter. It stated increased oil prices, natural gas volumes, and refining margins all contributed. Exploration and production income in the first quarter of 2011 was $260.4 million versus $247 million year over year. Refining and marketing income was $30.7 million. In 2010, refining and marketing had a loss of $29.7 million. In the first quarter of 2010 it had an EPS of 77 cents. In the first quarter in 2011 EPS was $1.38. Murphy Oil is benefiting from oil price but more importantly from refining. It seems the entire refining space has great margins with increasing throughput. Analysts estimate earnings growth of 58.6% in 2011 with growth of 15.9% next year.

W&T Offshore (NYSE:WTI) beat earnings by 38.7% in the first quarter of 2011. Analysts estimated W&T would earn 31 cents per share. It earned 43 cents. W&T recently announced a purchase of acreage in the Permian. It purchased 21500 net acres for $366 million. This leasehold is estimated to be 91% liquids. This year it has been 100% successful drilling wells. Main Pass 108 field was brought back on line, and is currently producing 46 Mmcfe/d. First quarter sales volume increased 14% year over year. Adjusted EBITDA increased 11% compared to the first quarter of 2010. Revenues increased 24% over they same time frame. W&T has a 2011 capital program of $310 million. Of this 27 onshore and 9 offshore wells will be completed. Six percent of production is from the Permian. The GOM shelf produces 62% and GOM deepwater 31%. W&T has 548841 net acres on the GOM shelf. 82% are held by production, and are 43% liquids. In 2010 W&T acquired 5 deepwater GOM properties. Approximate production from these locations is 12.9 Mboe. Analysts estimate earnings growth of 8.9% in 2011 and 24.6% in 2012.

Marathon Oil Corp. (NYSE:MRO) beat earnings estimates by 14.6% It reported an EPS of $1.65 versus an estimate of $1.44. On June 30th, Marathon will separate into 2 distinct companies. Surprisingly, Marathon had no derivatives impact in the first quarter. Year over year Marathon benefited by increased United States liquids production. Marathon produced 78 Mbp/d versus 58 Mbpd in the first quarter of 2010. Worldwide net sales in the first quarter of 2011 were 400 Mboep/d compared to 361 year over year. The largest increase in income was from refining, marketing and transportation. Marathon becomes very interesting in a spin off situation, due to improvements in the refining sector. It had income of $527 million versus a loss of $237 million in the first quarter of 2010. Marathon's numbers show the turnaround in refining margins. Marathon's total first quarter of 2011 E & P income was $668 million versus the year ago income of $502 million. Marathon has been acquiring liquids rich United States shale leaseholds. I would not be surprised if they announce other large purchases in 2011. Analysts estimate earnings growth of 70.7% in 2011, and a decrease in earnings of .3% in 2012. I am bullish Marathon's refining business going forward.

Suncor Energy (NYSE:SU) beat first quarter of 2011 earnings by 47.6%. Analysts expected earnings of 63 cents per share. Suncor reported 93 cents per share. Suncor states its higher operated earnings were due to higher oil sands production volumes and margins for refined products. Cash flow more then doubled year over year. Crude oil as a percentage of production increased to 87% from 77% over comparative period. Suncor's assets in Libya are a concern. Although it has not recorded any impairment charges, I would watch this situation closely. Suncor had a great quarter. It was aided by higher volumes and realized prices. Analysts estimate earnings growth of 78.8% in 2011 and 17.6% next year.

This list of nine companies had a very good first quarter. Increased realized prices, production volumes and refining margins created significant opportunities in this space. Although oil pricing seems to have lost momentum, some of these companies were able to increase income through refining operations. I think the oil space is still a good long term play, but I took a significant position in refiners based on large margins.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EOG over the next 72 hours.

Sources: Yahoo FinanceSource: EXCO Resources (XCO) Source: Anadarko Petroleum (APC) Source: Noble (NBL) Source: Callon Petroleum (CPE) Source: Miller Petroleum (MILL) Source: Murphy Oil (MUR) Source: W&T Offshore (WTI) Source: Marathon Oil (MRO) Source: Suncor (SU) This is a list of companies that beat earnings by a significant percentage. This is not a buy recommendation. I recommend all investors study the above names before purchasing. Purchasing stocks can lead to large losses in a short period of time, so choose investments carefully.

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