It has been about a month since the last earnings report for QEP Resources (QEP). Shares have added about 1.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is QEP Resources due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
QEP Resources’ Q4 Earnings and Sales Miss Estimates
QEP Resources reported fourth-quarter 2018 loss per share — excluding special items — of 13 cents, which missed the Zacks Consensus Estimate of break-even earnings and the prior-year earnings of $1.13. The underperformance stemmed from lower production volumes and higher operating expenses.
Moreover, quarterly revenues of $410.5 million missed the Zacks Consensus Estimate of $451 million. Sales were also down from the year-ago figure of $429 million.
The company announced that it has aborted its divestment plan of Williston Basin assets to Vantage Acquisition Operating Company. QEP Resources plans to divest Permian Basin gas midstream infrastructure in the first six months of 2019. Moreover, plans to divest other midstream infrastructure assets in the region along with non-core assets in the company’s portfolio are underway.
Overall fourth-quarter production of the company came in at 11,627.2 thousand barrels of oil equivalent (Mboe), down 2% from the year-ago period. While volumes of natural gas fell 18% year over year to 28.1 billion cubic feet (Bcf), that of natural gas liquids jumped 4% to 1,188.9 thousand barrels (Mbbl). Notably, oil volumes, which increased 10% from the prior-year quarter to 5,749.9 Mbbl (49.5% of total output), partially offset total production decline. The fall in fourth-quarter output was caused by a decline in oil production from the Williston Basin and decreased gas production due to lack of activities in the Haynesville/Cotton Valley. Moreover, the divested assets of Uinta Basin negatively affected total output.
With the company shifting its focus toward Permian Basin (included in its Southern Region assets), equivalent production from the area jumped 71% year over year to 4,368.7 Mboe. The rise was supported by higher gas capture rates due to the completion of midstream infrastructure. At the end of the quarter, the company was operating four rigs in the region. Total Southern Region production improved 19% year over year to 7,819.4 Mboe. However, production from Northern Region assets fell 31% year over year to 3,807.8 Mboe, primarily due to the divestment of Pinedale properties.
QEP Resources’ net realized natural gas price in the quarter was $2.69 per thousand cubic feet, marginally down from the year-ago level of $2.70. Net oil price realization declined 5% year over year to $48.98 per barrel. Net NGLs price realization also plummeted 22% year over year to $19.12 per barrel. However, overall net realized equivalent price averaged $32.70 per barrel of oil equivalent, up 2% from the prior-year quarter.
Total operating expenses in the quarter increased to $1,525.6 million from $461.8 million a year ago. The rise was primarily due to a surge in impairment costs, which was partially offset by decreasing lease operating costs, along with transportation and processing expenses.
Capital investment, excluding acquisitions, decreased nearly 49.4% year over year to $188.4 million in the fourth quarter, mainly due to a fall in drilling and completion activities in Permian and Williston basins, along with Haynesville/Cotton Valley.
In full-year 2018, capital investment (excluding acquisitions) was recorded at $1,176.6 million.
As of Dec 31, 2018, QEP Resources had no cash and cash equivalents. The company’s long-term debt was $2,507.1 million, representing a debt-to-capitalization ratio of 47.7%.
For first-quarter 2019, QEP Resources expects total oil-equivalent production in the range of 6.83-7.26 million barrels of oil equivalent (MMboe). During this period, oil and condensate production is expected within 4.95-5.15 million barrels (MMBbls). While gas output is expected in the range of 5.85-6.35 Bcf, NGLs production is estimated within 0.90-1.05 MMBbls.
For full-year 2019, QEP Resources expects total oil-equivalent production in the range of 28-29.9 MMboe. Oil and condensate production is expected at around 20.5-21.5 MMBbls. While gas output is expected in the range of 23-25 Bcf, NGLs production is projected within 3.7-4.2 MMBbls.
Per BOE lease operating and adjusted transportation and processing costs are expected in the range of $9-$10 for full-year 2019. General and administrative expense are expected between $170 million and $180 million.
The company expects total capital investment (excluding acquisitions) in the range of $615-$665 million. The mid-point of the guidance is 39% lower than 2018 capital spending. Notably, 80% of the capital spending is expected to be allotted toward the Permian Basin. Additionally, the company intends to reach cash flow neutrality during this year.
In order to maximize shareholder value, it is reviewing strategic alternatives including the option of a merger or sale of the company as well as its assets. Among several companies that can be involved in a transaction, Elliott Management Corporation is a potential party.
QEP Resources intends to make its cost structure competitive compared to peers. To this end, the company plans to reduce general and administrative costs by around 45% within 2020.
At the end of 2018, the company had a total proved reserve of 658.2 MMboe, of which 339.1 MMbbls is expected to be crude oil and condensate. Comparably, QEP Resources had proved reserves of 684.7 MMBoe at the end of 2017. In the Permian Basin, proved reserves rose 13% from 2017 levels to 307.8 MMboe.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -15.87% due to these changes.
At this time, QEP Resources has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, QEP Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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