On Apr 13, Zacks Investment Research upgraded EPL Oil & Gas Inc. (EPL) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
EPL has been using acquisitions to expand its presence in the Gulf of Mexico (GoM). Continued increased production has been a boon for this independent energy exploration company, whose earnings are expected to rise strongly in 2013.
EPL reported fourth quarter 2012 non-GAAP earnings per share of 67 cents on Mar 7, beating the Zacks Consensus Estimate of 47 cents by 43% and the year-ago profit of 39 cents by 72%.
Results were driven by liquids volume (oil and natural gas liquids), which was up 43% year over year to a record 13,516 barrels per day (Bbl/d). EPL’s output growth can be attributed to solid performance from its oil-weighted projects, as well as contribution from the Hilcorp property buy.
On Oct 31, 2012, EPL completed its previously announced acquisition of certain shallow water GoM assets from privately-held Hilcorp Energy GOM Holdings LLC for $550 million. The transaction will increase EPL’s proven reserves base by almost 100% to roughly 74 million oil-equivalent barrels (BOE), while boosting daily production by some 80% to more than 20,000 BOE.
The company expects the volume uptrend to continue and projects liquids volumes to hit 16,000–17,000 Bbl/d in the first quarter, going further up to 17,000–18,500 Bbl/d in 2013.
Based on the success of the company’s acquire-and-exploit policy, EPL’s 2012 year-end proved reserves tally was 109% above the year-earlier level, with an impressive reserve replacement of 187%.
As a result of these bullish factors, the tendency for an upward estimate revision has been more obvious in recent times. In fact, three out of 5 estimates for the first quarter have moved higher in the past 60 days, pushing the Zacks Consensus Estimate up by 5 cents (or 7%) to 80 cents. For 2013, four out of 6 estimates moved north in the past 60 days, helping the Zacks Consensus Estimate advance by 14 cents (or 4%) to $3.47.
Other Stocks to Consider
In addition to EPL, there are certain other domestic upstream energy operators like Cheniere Energy Inc. (LNG), Stone Energy Corp. (SGY) and Range Resources Corp. (RRC) that offer value and are worth buying now. All these firms sport a Zacks Rank #1 (Strong Buy).
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