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QEP Resources (QEP) Q3 Earnings In Line, Ups Production View

Nilanjan Choudhury

QEP Resources, Inc. QEP reported in-line third quarter profit, primarily driven by robust production. Precisely, the upstream player’s output of 8,404 thousand barrels of oil equivalent (Mboe) surpassed the Zacks Consensus Estimate of 7,500 Mboe. Consequently, the company saw its net income per share (excluding special items) come in at 5 cents per share, same as the Zacks Consensus Estimate.

However, QEP Resources’ bottom line witnessed a fall from the year-ago quarter’s adjusted profit of 17 cents on weak commodity price realizations. 

Quarterly revenues of $307.5 million surpassed the Zacks Consensus Estimate of $296 million. However, the top line deteriorated sharply from the year-ago figure of $560.8 million.

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 $55 a barrel.

QEP Resources also named two new independent directors to its board as per the company’s cooperation agreement with billionaire activist investor Paul Singer’s Elliott Management Corp. Notably, despite the multibillion-dollar buyout offer from Elliot, the Denver-based oil and gas explorer has decided to remain an independent firm.

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

 

Volume Analysis

Production of crude and natural gas totaled 8,404 Mboe (67% oil and condensate), down 42% from a year ago, primarily reflecting the sale of Haynesville/Cotton Valley and Uinta Basin assets. Further, lower activity levels in the Williston Basin caused a 38% decrease in volumes from the region.

Natural gas volumes substantially declined 78% year over year to 8.2 billion cubic feet (Bcf), while natural gas liquids output edged down 2% to 1,383 thousand barrels (Mbbl). Meanwhile, oil volumes decreased from 6,640.5 Mbbl in third-quarter 2018 to 5,670.5 Mbbl in the quarter under review.

However, with the company’s shift in focus toward the Permian Basin, equivalent production from the area rose 18% year over year to a record 5,658.5 Mboe. Investors should know that QEP Resources allocated bulk of 2019 capital budget for this lucrative basin, as it aims at transforming itself into a Permian pure play.

Realized Prices

QEP Resources’ net realized natural gas price in the quarter was $1.13 per thousand cubic feet, down 59% from the year-ago level of $2.76. The realized price also lagged the Zacks Consensus Estimate of $1.47 per Mcf of gas. Net oil price realization declined 8% year over year to $51.83 per barrel and was below the Zacks Consensus Estimate of $53 per barrel. Finally, net NGLs price realization plummeted 71% from the third quarter of 2018 to $8.63 per barrel and also missed the Zacks Consensus Estimate of $10.65.

Costs, Capex and Balance Sheet

Total operating expenses in the quarter decreased significantly to $253.3 million from $431.1 million a year ago. Capital investment — excluding acquisitions — decreased 36.7% year over year to $128.9 million in the third quarter, mainly due to a fall in completion activities in the Permian Basin. Importantly, a tight leash on costs helped QEP Resources generate $17.5 million in free cash flows.

As of Sep 30, QEP Resources had $92.4 million in cash and cash equivalents. The company’s long-term debt was $2,029.4 million, representing a debt-to-capitalization ratio of 42.3%.

Revised Guidance

For fourth-quarter 2019, QEP Resources expects total oil-equivalent production in the range of 8.3-8.9 million barrels of oil equivalent (MMBoe). Oil and condensate production is expected within 5.7-6 million barrels (MMBbls). While gas output is expected in the range of 7.9-8.4 Bcf, NGLs production is estimated within 1.3-1.5 MMBbls. Capital outlay for the third quarter is anticipated in the band of $101-$116 million.

For full-year 2019, QEP Resources expects total oil-equivalent production in the range of 32-32.6 MMBoe, up from the earlier forecast of 29.9-31 MMBoe. Oil output is now estimated within 21.6-21.9 MMBbls versus prior forecast of 21-21.5 MMBbls. Gas and natural gas liquids production are anticipated in the band of 32.4-32.9 Bcf and 5-5.2 MMBbls, revised upward from the prior guidance of 28-30 Bcf and 4.25-450 MMBbls, respectively.

The company has also lowered its projections for lease operating and adjusted transportation and processing costs to a band of $8.5-$9.25 per Boe from the previous guidance of $9-$10 per Boe. Moreover, QEP Resources now projects general/administrative expenses within $155-$165 million versus prior forecast of $160-$170 million. Finally, the company cut its capital expenditure guidance for 2019 from $580-$600 million to $567-$582 million.

The company projects free cash flow of $120 million in 2020.

Zacks Rank & Stock Picks

QEP Resources holds a Zacks Rank #3 (Hold).

Meanwhile, investors interested in the energy space could look at some better options like TC Energy TRP, Phillips 66 PSX and Keane Group, Inc. FRAC that sport a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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