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QEP Resources (QEP) Q3 Earnings Top on Strong Production

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QEP Resources, Inc. QEP reported third-quarter adjusted net income per share of 13 cents compared with the Zacks Consensus Estimate of breakeven earnings and the year-ago quarter’s profit of 5 cents. The outperformance is attributable to better-than-expected production volumes. Precisely, QEP Resources’ total quarterly production came in at 7,057 thousand barrels of oil equivalent (MBoe), outpacing the Zacks Consensus Estimate of 6,807 MBoe.

However, quarterly revenues of $177.8 million lagged the Zacks Consensus Estimate by 22.83% due to weak oil price realizations. Also, the top line deteriorated 42.2% from the year-ago quarter’s sales of $307.5 million.

Volume Analysis

Production of crude and natural gas summated to 7,057 thousand barrels of oil equivalent (MBoe) (63% oil and condensate), down 16% from the year-ago quarter’s figure of 8,404Mboe, primarily reflecting lower drilling activity in the Permian Basin.

Natural gas volumes fell 5% year over year to 7.8 billion cubic feet (Bcf), while natural gas liquids output dropped 7% to 1,287.1 thousand barrels (Mbbl). Oil volumes deteriorated from 5,670.5 Mbbl in third-quarter 2019 to 4,447.3 Mbbl in the quarter under review.

Moreover, the company’s Permian Basin production fell 23% year over year to 4,376.2 Mboe, contributing 62% of its total output.

Realized Prices (Excluding Derivative Impact)

QEP Resources’ net realized natural gas price in the quarter was $1.17 per thousand cubic feet, up 3.5% from the year-ago quarter’s level of $1.13. Moreover, the realized price beat the Zacks Consensus Estimate of 96 cents per Mcf of gas. Net oil price realization declined 27.8% year over year to $38.07 per barrel and fell below the Zacks Consensus Estimate of $38.47 per barrel as well. Further, net NGL’s price realization plummeted 18.5% from the third quarter of 2019 to $10.23 per barrel.

QEP Resources, Inc. Price, Consensus and EPS Surprise

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

Costs, Capex and Balance Sheet

Total operating expenses in the quarter declined considerably to $220 million from $253.3 million in the prior-year quarter. Moreover, QEP Resources’ third-quarter lease operating expenses came in at $35.5 million, down 7.3% year over year. General and administrative costs fell 29.4% year over year. Capital investment excluding acquisitions declined 70.2% year over year to $38.4 million in the third quarter, mainly due to considerably lowering development in the Permian and Williston basins as a result of the oil price plunge.

As of Sept 30, 2020, QEP Resources had $9.5 million in cash and cash equivalents. The company’s long-term debt was $1,590.4 million, representing a debt-to-capitalization of 36.2%.

2020 Guidance

In response to the coronavirus-induced sudden oil price slump, QEP Resources is undertaking steps to rationalize its planned activities and capital spending for the current year asthe financial outlook for 2020 continued to improve.

Amid the growing crisis, this Denver, CO-based company plan to spend approximately $333-$347 million of capital in 2020 compared with the prior guidance of $340-$380 million. Moreover, the independent energy player anticipates generating free cash flow of minimum $200 million in the ongoing year. 

The company also raised its 2020 production outlook to the band of 29.2-30.1 million barrels of oil equivalent (MMboe) from the earlier forecast of 28.1-29.6 MMboe.

QEP Resources also revised its operating expense view. It projects lease operating expenses in the range of $4.60-$4.90 per Boe, while general and administrative expenses are predicted in the $85-$88 million band. The earlier ranges were $5.00-$5.30 per Boe and $85-$90 million, respectively. 

Zacks Rank & Key Picks

QEP Resources has a Zacks Rank #3 (Hold), currently. 

Some better-ranked players in the energy space are Equitrans Midstream Corporation ETRN and DCP Midstream Partners LP DCP, each currently sporting a Zacks Rank #1 (Strong Buy), and Cabot Oil Gas Corporation COG, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, the Zacks Consensus Estimate for 2020 earnings for Equitrans Midstream moved up 18.9%.

DCP Midstream is expected to see earnings growth of 169.1% in 2021, whereas Cabot Oil is likely to witness earnings growth of 201.6% in 2021.

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