As E&P has become a show-me story, several E&Ps have already provided free cash flow estimates for 2019, says Barclays analyst Jeanine Wai. (Source: Hart Energy)
Weaker crude oil prices led to lower earnings and misses for several E&P companies including Concho Resources Inc. (NYSE: CXO) and Devon Energy Corp. (NYSE: DVN).
Similar to other upstream oil and gas companies, Midland, Texas-based Concho Resources reported mixed results for the fourth quarter as Barclays analyst Jeanine Wai said its cash flow per share did not meet expectations.
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The company reported total oil production of 199,000 barrels per day (bbl/d) of oil was within the guidance range of 198,000 to 201,500 bbl/d. Concho’s capex of $2.5 billion was at the low end of the guidance range of $2.5 billion to $2.6 billion, Wai added in a research report.
After the markets closed following Concho’s earnings release, the company “lowered its 2019/2020 production and capex forecast to be consistent with a $50 WTI price environment,” Wai said in the report. “Since E&P has become a show-me story and several E&Ps have already provided [free cash flow] estimates for 2019, we think [Concho Resources] runs the risk of the new outlook screening negatively.”
The price target from Barclay’s for Concho Resources is $162 with a rating of overweight/positive.
The decision by Oklahoma City, Okla.-based Devon Energy to separate its Canadian and Barnett Shale assets through a sale or a spinoff will likely improve its cash flow and profit margin.
RELATED: Devon Energy Targets Oil Transformation By Year-End 2019
The company reported its fourth-quarter upstream revenue, excluding commodity derivatives, totaled $1.1 billion, an 18% decline compared to the year-ago quarter. Devon’s operating cash flow from continuing operations totaled $542 million in the fourth quarter.
Devon Energy has lowered its overall debt to $5.9 billion with no significant debt maturities until mid-2021, an undrawn credit facility of $3 billion and ended the fourth quarter with $2.4 billion of cash on hand.
Other E&P companies, including regional ones, reported disparate fourth-quarter earnings, including Noble Energy Inc. (NYSE: NBL), Cimarex Energy Co. (NYSE: XEC), Diamondback Energy Inc. (NASDAQ: FANG), SM Energy Co. (NYSE: SM) and WPX Energy Inc. (NYSE: WPX). The large dip in oil prices and other factors caused the stock of many companies to decline.
Houston-based Noble Energy reported a fourth-quarter net loss of $824 million or $1.72 per diluted share. Total company sales volumes for the fourth quarter were 350,000 barrels of oil equivalent per day (boe/d), above the upper end of the company’s guidance range.
Noble Energy reported a slight 2% EBITDAX beat compared to the Street consensus, but in line with Barclays’ estimate, with total oil production of 138,000 bbl/d coming in near the top end of the guidance range and capex toward the lower end of the guidance range, wrote Wai.
One negative factor—Noble Energy will “meaningfully outspend operating cash flow in 2019,” she wrote. “However, this outspend is broadly expected by the market and therefore 2020 is the more incremental update to the [Noble] story, given the much-anticipated free cash flow inflection due to Leviathan coming online.”
Denver-based Cimarex Energy reported a strong fourth quarter with earnings per share/cash flow per share of $1.98/$4.48 vs. Street consensus of $1.78/$4.12 and Barclays of $1.88/$4.26. The company’s “better-than-expected lower cash operating costs, higher oil production and stronger NGL pricing drove the beat vs. our model,” wrote Wai in a research report.
The company’s three-year plan will “deliver what the investor community has been asking for: multi-year growth within cash flow and a commitment to discipline,” the report said. “Yes, the math works out such that [Cimarex’s] forecasted 15% average annual oil growth rate for 2019-2021 is inorganically juiced by a high 23% oil growth rate in 2019.”
One positive note is that Cimarex has increased “oil volumes for two years in a row on basically flat capex [excluding inflation] and while generating some free cash flow,” Wai wrote. “Currently [Cimarex] is an ‘in-betweener’ name, in our view.”
Cimarex has an equal weight/positive rating with a price target of $81 from Barclays.
Diamondback Energy, a Midland, Texas-based company, reported fourth-quarter adjusted net income of $148 million or $1.21 per diluted share. The company closed its acquisition of Energen along with multiple transactions in Spanish Trail North. The deals allowed Diamondback to increase its assets by 123% year-over-year to a total of roughly 461,000 net acres in the Permian Basin (195,000 net acres in the Midland Basin, 170,000 net acres in the Delaware Basin and 96,000 net acres in other areas of the Permian).
Denver-based SM Energy reported an adjusted net loss was $20 million or $0.18 per diluted common share for the fourth quarter. The net cash was $179.5 million. SM Energy spent a total of $1.4 billion for oil and gas activities for 2018. The company drilled 117 net wells and completed 104 net wells in the Permian Basin and drilled 20 net wells and completed 26 net wells in the Eagle Ford.
SRC Energy, a Denver-based oil and gas E&P company with operations focused on the Wattenberg Field in the Denver-Julesburg Basin, reported fourth-quarter revenue of $190.3 million with a net income of $82 million or $0.34 per diluted share.
WPX Energy, a Tulsa, Okla.-based company, reported fourth-quarter 2018 oil volumes of 96,000 bbl/d, which was 49% higher vs. a year ago and 15% higher than the previous quarter. WPX reported an unaudited net income for the quarter of $353 million or income of $0.83 per share on a diluted basis. The company also reduced their operating areas from three to two and paid down almost $500 million of senior notes.
RELATED: WPX Energy Unveils $300 Million Worth Of Permian Basin A&D
“WPX reported slightly weak fourth-quarter 2018 [cash flow per share], but production was 6% above consensus and oil production was 2% above consensus,” wrote Leo Mariani, equity research analyst at KeyBanc Capital Markets, in a research report. “Foruth-quarter 2018 capex was 35% above consensus. We are maintaining an overweight rating on WPX with a $16 price target due to its discounted valuation, decent growth and the potential unlocking of additional hidden midstream value in 2019.”
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