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QEP Resources (QEP) Posts Q2 Loss, Resumes Dividend, Ups View

Zacks Equity Research

QEP Resources, Inc. QEP unveiled second-quarter 2019 results on Aug 7, wherein the firm slipped to loss but topped the Zacks Consensus Estimate of sales by a whisker.

The upstream player reported loss per share — excluding special items — of 4 cents against the Zacks Consensus Estimate of earnings of 3 cents. The underperformance was attributed to lower-than-expected commodity price realizations. The bottom line also compared unfavorably with earnings of 6 cents a share in the year-ago period amid lower output and pricing weakness.  

Quarterly revenues of $296.2 million nominally surpassed the Zacks Consensus Estimate of $295 million. However, the top line deteriorated sharply from the year-ago figure of $532.4 million.

QEP Resources, Inc. Price, Consensus and EPS Surprise

QEP Resources, Inc. Price, Consensus and EPS Surprise

QEP Resources, Inc. price-consensus-eps-surprise-chart | QEP Resources, Inc. Quote

On a positive note, QEP Resources resumed dividend payment, which it had suspended in 2016 amid oil and gas price weakness. The company announced payout of 2 cents a share, payable on Sep 10, 2019 to its shareholders of record as of Aug 20, 2019.

Further, it has increased its full-year output guidance, and trimmed cost and capex forecasts. QEP Resources expects to generate positive free cash flow in the remainder of 2019 and 2020 at an oil price of $50 a barrel.

Notably, despite the multibillion-dollar buyout offer from Elliot Management Corp, QEP Resources announced its decision to remain an independent firm. The Denver-based oil and gas explorer will appoint two new independent directors to the board, as part of its cooperation agreement with Elliot.

Volume Analysis

Overall production of the company came in at 7,534.7 thousand barrels of oil equivalent (Mboe), down 46.6% from the year-ago period. The divestment of Haynesville/Cotton Valley and Uinta Basin assets attributed to the fall in production volumes. Further, lack of new well completions caused 34% y/y decline in volumes from the Williston Basin.

While natural gas volumes substantially declined 81% y/y to 7.2 billion cubic feet (Bcf), natural gas liquids output scaled up 3% to 1,186 thousand barrels (Mbbl). Oil volumes decreased from 6,567.6 Mbbl in second-quarter 2018 to 5,150.3 Mbbl (68.3% of total output) in the quarter under review.

With the company’s shift in focus toward the Permian Basin, equivalent production from the area rose 13% year over year to 4,552.4 Mboe. QEP Resources allocated bulk of 2019 capital budget for this lucrative play, as it aims at transforming itself into a Permian pure play.

Realized Prices

QEP Resources’ net realized natural gas price in the quarter was $1.01 per thousand cubic feet, down 63% from the year-ago level of $2.72. The realized price lagged the Zacks Consensus Estimate of $1.38 per Mcf of gas. Net oil price realization declined 4% year over year to $52.35 per barrel. Net NGLs price realization plummeted 47% year over year to $12.06 per barrel and also missed the Zacks Consensus Estimate of $12.81.

Costs, Capex and Balance Sheet

Total operating expenses in the quarter decreased significantly to $241.7 million from $850.3 million a year ago.

Capital investment — excluding acquisitions — decreased more than 53.5% year over year to $170 million in the second quarter, mainly due to a fall in drilling and completion activities in Permian and Williston basins.

As of Jun 30, QEP Resources had $97.1 million in cash and cash equivalents. The company’s long-term debt was $2,028.1 million, representing a debt-to-capitalization ratio of 43%.

Revised Guidance

For third-quarter 2019, QEP Resources expects total oil-equivalent production in the range of 7.1-7.5 million barrels of oil equivalent (MMBoe). Oil and condensate production is expected within 5.2-5.4 million barrels (MMBbls). While gas output is expected in the range of 5.8-6.2 Bcf, NGLs production is estimated within 0.9-1.1 MMBbls. Capital outlay for the third quarter is anticipated in the band of $150-$160 million.

For full-year 2019, QEP Resources expects total oil-equivalent production in the range of 29.9-3.10 MMBoe versus earlier forecast of 28.5-30.3 MMBoe. Oil output is now estimated within 21-21.5 MMBbl versus prior forecast of 20.5-21.5 MMBbl. Gas and natural gas liquids production is anticipated in the band of 28-30 Bcf and 4.25-4.50 MMBbl compared with the prior guidance of 25.5-27.5 Bcf and 3.7-4.2 MMBbl, respectively.

While the firm has kept its projections for lease operating and adjusted transportation and processing costs unchanged, QEP Resources projects general/administrative expenses within $160-$170 million versus prior forecast of $165-$175 million. The company slashed its capital expenditure guidance for 2019 from $615-$655 million to $580-$600 million. The mid-point of the guidance is 53% lower than 2018 capital spending.

Zacks Rank and Key Picks

QEP Resources currently carries a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are NuStar Energy NS, Delek Logistics Partners DKL and BP Midstream Partners BPMP. While NuStar sports a Zacks Rank #1 (Strong Buy), Delek Logistics and BP Midstream are Zacks Ranked #2 players. You can see the complete list of today’s Zacks #1 Rank stocks here.

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