E&P Earnings Recap: Mixed Results From Shale Producers

E&P companies reported mixed first-quarter results despite a rebound in crude oil prices from the decline at the end of 2018.

Continental Resources Inc., Concho Resources Inc., Devon Energy Corp., Encana Corp. and Antero Resources Corp. are among E&Ps that have reported results so far this earnings season.

RELATED: E&P Earnings Recap: US Shale Producers Kick Off 2019 With Strong Returns

Continental Resources

Oklahoma City-based Continental Resources beat Wall Street estimates for quarterly profit on April 29, which John Aschenbeck, senior analysts with Seaport Global Securities LLC, attributed to better-than-expected well productivity across the company’s Bakken and Midcontinent operations.

However, Aschenbeck said the company’s first-quarter results were “partially dampened” by a 6% capex miss of more than $44 million.

Continental reported total capex for the quarter of roughly $750.2 million. Aschenbeck said he believes the capex miss was likely due to elevated levels of drilling and completion activity and a higher degree of mineral spending through Continental’s joint venture with Franco-Nevada Corp.

Continental, which is among the top 10 independent oil producers in the U.S., grew production during the first quarter by 16% year-over-year, averaging 332,236 barrels of oil equivalent per day (boe/d). The company’s oil and natural gas production were both up during the quarter. Oil production was up 18%, averaging 193,921 barrels per day of oil, and gas production increased 12% year-over-year, averaging 829.9 million cubic feet per day.

In particular, the company boasted the performance of a trio of step-out wells in the Bakken significantly outperforming legacy wells. The wells, completed with optimized designs that Continental CEO Jack Stark claims proves the value of the company’s inventory in the Williston Basin shale play.

RELATED: Continental Resources: Bakken’s Core ‘Just Got Bigger’

“This is great news for our shareholders as we can confidently say that the value and performance of our inventory of approximately 4,000 Bakken wells continues to grow,” Stark said on an earnings call April 30. “We can also say that the core of the Bakken … just got bigger.”

Continental also has operations focused in the Scoop and Stack shale plays in Oklahoma, where the company also said it is seeing strong results.

Adjusted net income for the first quarter fell to $216.6 million from $255.1 million a year ago. Excluding one-time items, Continental reported earnings of 58 cents per share beating the average estimate of 49 cents, according to analysts with Tudor, Pickering, Holt & Co. (TPH).

Continental also generated strong cash flow during the quarter of roughly $40 million, ahead of the $9 million estimated by Jefferies LLC equity analyst Thomas Hughes.

“As we suspected, [first-quarter 2019] is proving hard for E&Ps to offer a perfect mixture of below [consensus] capex in tandem with a production beat,” Hughes said in an April 29 research note. “That being said, we think investors will look past capex coming in [about] 6% ahead thanks to the [about] 2% oil beat and strong pricing which netted [free cash flow of about $30 million higher than our estimate.”

Hughes said production and pricing helped propel cash flow for Continental during the quarter.

Continental also reiterated on April 29 its capex of $2.6 billion for the year. In February, the company projected its 2019 capex would generated between $500 million and $600 million of free cash flow, which would enable it to reduce net debt to its $5 billion target.

The company reported it ended the first quarter with $5.5 billion in net debt.

Concho Resources

Concho Resources, a Midland Texas-based operator of Permian Basin assets, also reported mixed first-quarter results. Notably, the company reported April 30 a large beat on first-quarter production but with higher spending.

Concho core operating areas include the Delaware Basin and the Midland Basin and span nearly one million gross acres across southeast New Mexico and West Texas.

“[First-quarter] production of 328,000 boe/d and oil volumes of 210,000 barrels per day of oil crush expectations on the combination of several large projects coming online ahead of schedule and nonop activity, but are somewhat offset by capex coming in hot at $926 million [$40 million from increased nonop activity] vs. TPH estimates $848 million / Street $840 million,” TPH analysts wrote in a May 1 research note.

TPH analysts estimated Concho’s first-quarter production at 307,000 boe/d and Street consensus was 306,000 boe/d.

As a result of the production beat, Concho has raised its full-year 2019 production growth outlook, but maintained its capex guidance for the year.

Credit Suisse analyst William Featherston maintained its neutral rating on Concho Resources and a target price of $132 a share since the company’s cash flow per share of $3.34 beat the consensus Credit Suisse’s $3.43 forecast. The adjusted EBITDAX of $755 million, a 31% year-over-year increase was also 5% above consensus, he wrote in a research report. 

Concho reported earnings of 72 cents below the Wall Street consensus of 76 cents. The company’s adjusted net income fell year-over-year to $144 million from $149 million for first-quarter 2018. Cash flow from operating activities was $623 million. The company also had $615 million of outstanding borrowings under its credit facility as of March 31.

During the first quarter, Concho also sold its stake in the Oryx I oil gathering and transportation system as part of Stonepeak Infrastructure Partners’ multibillion-dollar takeout on April 2 of Oryx Midstream. Concho expects to the sale to generate net proceeds of $300 million.

RELATED: Concho, WPX Divest Permian Midstream Assets In $3.6 Billion Oryx Sale

The company also sold its produced water assets in the Southern Delaware Basin to WaterBridge Resources LLC and formed a midstream joint venture in the Midland Basin during the quarter.

Devon Energy

Oklahoma City-based producer Devon Energy’s first quarter came in strong driven by a production beat as the company continues its transformation away from gas.

“Strong first quarter for New [Devon] following its transformational shift into an oil-weighted U.S.-focused E&P, announced with [fourth-quarter] earnings,” Seaport’s Aschenbeck said in an April 30 research note.

RELATED: Devon Energy Targets Oil Transformation By Year-End 2019

Devon launched plans in February for the possible sale or spin-off of its Canadian and Barnett Shale assets by year-end. This will leave Devon with core positions in four basins: the Delaware Basin, Stack play, Powder River Basin and Eagle Ford Shale.

Aschenbeck said Devon’s first-quarter oil production from retained assets came in more than 8% above the midpoint of 125,000 to 130,000 barrels per day of oil guidance. He also noted that the company’s upstream capex of $457 million also registered below the low end of $475 million to $525 million guidance.

Devon reported production from its retained assets averaged 308,000 boe/d during the first quarter. Oil and liquids production accounted for nearly 70% of total volumes.

TPH analysts said the company’s production beat was driven by the Delaware Basin, boosted by the first phase of the “Cat Scratch Fever” Bone Spring area offset to last year's Boundary Raider wells.

The top five wells from Devon’s Cat Scratch Fever Project in Lea County, N.M., averaged an IP-30 of 10,000 boe/d (80% oil) from the Second Bone Spring formation.

Featherston maintained Credit Suisse’s outperform rating and target price of $37 a share because of the company’s “strong” first quarter enables its increased volume guidance, he wrote in a research report.

Devon raised its 2019 production guidance by 10,000 boe/d to between 506,000 and 540,000 boe/d with “retained” U.S. oil volumes expected to grow 17% year-over-year, the Credit Suisse report said.

The company’s first-quarter earnings of 38 cents beat the Wall Street consensus of 27 cents.

Net loss attributable to Devon widened to $317 million in the first quarter from $197 million a year earlier, primarily due to a $670 million non-cash charge related to the company's hedge positions.

The company also repurchased $1 billion worth of shares in the first quarter.

Encana

Encana reported mixed first-quarter results on April 30 with a production miss and an earnings per share beat.

“Encana reported a messy [first-quarter], with the impact of a mid-quarter close of the [Newfield Exploration] acquisition and a lower level of [fourth-quarter spending leaving [first-quarter] production lower than consensus expectations,” Zach Parham, Jefferies equity analyst, wrote in an April 30 research note.

Headquartered in Calgary, Alberta, Encana’s three core growth assets are located in the Permian Basin in Texas, Anadarko Basin in Oklahoma and Montney shale play spanning northeastern British Columbia and northwestern Alberta.

Last year, the company agreed to acquire Newfield Exploration for $5.5 billion in a cash-and-stock transaction to boost its operations in the Scoop and Stack region within the Anadarko Basin. The acquisition closed during the first quarter on Feb. 13.

Positives from Encana’s first quarter included achieving $1 million in well cost savings in the Stack play, adding $25 million to annual G&A savings expected from the Newfield deal, and reaffirmed full-year 2019 guidance, Parham added.

The company also holds positions in the Duvernay, Williston Basin, Eagle Ford Shale and Uinta.

RELATED: Encana Gears Up For Its First Anadarko Basin Cube Development

Barclays analyst Jeanine Wai maintained a rating of overweight/positive on Encana with a target price of $11 per share.

Encana reported a “weak first quarter on the numbers but a strong operations update on deal synergies and well cost reductions in the Anadarko [Basin],” she wrote in a research report. 

“Since the Newfield deal closed mid-quarter, the market anticipated a messy first quarter for Encana,” Wai wrote. “Although Encana is moving away from focusing on [quarter-over-quarter] production/capex, we think it is an important yardstick for measuring execution and is particularly important following a big transaction like Newfield.”

The producer’s first quarter cash flow per share of 35 cents missed Barclays estimates by 5% and filtered consensus of 23%. Oil production missed Barclays estimates by 5% and filtered consensus of 6%. Lastly, capex beat Barclays estimate by 9% but missed filtered consensus by only 1%.

Encana’s first-quarter earnings of 14 cents beat the Wall Street consensus of 12 cents, according to TPH analysts.

Adjusted operating earnings rose to $165 million in the first quarter, from $156 million a year earlier. Total adjusted production rose 13% year-over-year to 566,600 boe/d from 500,900 boe/d a year ago.

At the end of the first quarter, Encana had $4.4 billion of total liquidity including $479 million in cash and cash equivalents and $4 billion available credit on the company’s undrawn credit facilities.

Antero Resources

Antero Resources reported first-quarter earnings beat on May 1 despite its production coming in short of Street expectations.

The Denver-based producer is focused in the Appalachian Basin where it holds over 612,000 net acres in the southwestern core of the Marcellus and Utica shale plays in West Virginia and Ohio.

Antero reduced its 2019 capex budget on May 1 to between $1.3 billion and $1.375 billion from between $1.3 billion and $1.45 billion. The company also plans to run four rigs and three completion crews for the remainder of the year, down from five rigs and four completion crews during the first quarter.

“In contrast to some of what we've seen this season, [Antero’s] release comes with a [full-year] budget reduction,” TPH analysts said in a May 2 research note. “Efficiencies are improving stages per day, which is lowering well costs and allowing management to downshift to four rigs / three crews [a decrease of one each] for a slight, but welcomed, -3% reduction to [full-year] spending plans to $1.3 billion and 1.375 billion.”

Antero’s first-quarter earnings of 35 cents beat the Wall Street consensus of 30 cents, according to analysts with Capital One Securities Inc.

The company’s adjusted net income for the quarter of $108 million was down from $141 million a year ago.

Total production of 3,099 million cubic feet equivalent per day was -3% below Street estimates, Capital One analysts said due to a negative impact of lower ethane recovery. Capex spending for the first quarter of $407 million was 7% above the Street consensus and 21% above Capital One estimates.

“Quarterly production and financials were slightly short of Street expectations as [first-quarter] capex came in hot,” Capital One analysts said in a May 2 research note. “However, we think the 3% reduction to the full-year drilling and completion budget and the 23 Marcellus wells that were put to sales with 60-day rates 11% better than we model are enough to offset soft quarterly results.”

Antero also completed the midstream simplification transaction in mid-March and deconsolidated Antero Midstream financials during the quarter.

The borrowing base under Antero’s credit facility was reaffirmed at $4.5 billion during the spring borrowing base redetermination period.