Saturday, July 13, 2013

Three Energy Firms to Watch This Earnings Season

From The Motley Fool
By Sarfaraz A. Khan
Research Assistant: G. Yousuf

Oil and gas Exploration and Production (E&P) companies Newfield Exploration (NYSE:NFX) and Hess Corporation are among those American energy firms which, amid pressure from shareholders, have been divesting from less lucrative international oil and gas ventures and investing in more profitable areas closer to their home market. I have already discussed about Hess Corporation’s strategic change and its implications in my previous article.
Here, I will discuss Newfield Exploration and two other E&P plays – the rapidly growing Oasis Petroleum (NYSE: OAS) and Wall Street favorite Anadarko Petroleum (NYSE: APC) – which can beat the market’s expectations in their upcoming earnings release.

Newfield Exploration: Domestic focus
A recent report by Reuters revealed that Newfield and Hess are selling their $3 billion stake in Asian oil and gas fields through two separate auctions. Hess Corporation is selling its assets in Indonesia and Thailand that have an estimated value of around $2 billion. Newfield is selling Chinese and Malaysian fields worth $1 billion.
Newfield’s domestic liquids production has been its strong point and this is the area where investors need to focus. Newfield’s core business is liquids production which accounted for 56% of its net production of 11.7 million barrel of oil equivalent (boe) in the previous quarter. Nearly 85% of the total liquids production is crude oil and condensates.
In domestic operations, its liquid production rose 9% sequentially and 30% year-over-year, when adjusted for asset sales. In coming years Newfield will report significant growth in domestic liquids but will scale down its international operation, so its total output could fall. It will spend around $1.8 billion in capital expenditure this year while its domestic liquids volume will grow by 39%.
Newfield’s second quarter results are due on July 24 and it is expecting a 12% sequential growth in the domestic liquid production. In the previous quarter, Newfield posted better than expected operational performance which helped restore investor confidence. The company was able to beat both revenue and earnings estimates. Based on its production plans, such as better well development and additional drilling in oil-rich fields like Uinta, Williston Basin and Cana Woodford, along with capex estimates, I believe the company could very well beat the analysts’ estimates once again in their earnings release.
Its shares have remained under pressure as it reported consecutive earnings misses in the last three quarters of the previous year. However, its most recent earnings beat caused its shares to rally as its stock rose by 9.2% in the final week of April. If it manages to deliver another earnings beat, then this could happen again as there is still considerable room for improvement.
Oasis Petroleum: Strong Growth
In its previous quarter, Oasis Petroleum reported adjusted earnings of $0.56 per share showing a massive increase of 80.65% from last year while revenue rose by an impressive 79.2% year-over-year to $248.3 million. Needless to say, the company managed to beat earnings estimate by $0.05 per share and revenue estimates by $26.3 million. The revenue beat is a very healthy sign for investors which points towards a company with high growth potential. Moreover, in the last five quarters, Oasis has consistently beaten the analysts’ revenue estimates.
Oasis will invest nearly all of its $1.02 billion capital expenditure in E&P activities. Its production is also going strong as its output now stands at 30,153 boe per day showing a 71% increase from the same quarter last year. The company has set a target of between 31,000 and 34,000 boe per day. It is also a key player in the oil dominated Williston Basin and holds 335,000 net acres in the region. With the rapid increase in production, improvements in realized prices and costs, the company appears on track to deliver another earnings beat on August 5 and therefore I am bullish on Oasis.
Anadarko Petroleum: The Long Term Play
Anadarko Petroleum's strength comes from  rising production levels, new discoveries and better natural gas pricingThe company has also managed to beat both top and bottom line estimates in the previous quarter on the back of strong performance from its onshore assets.
Due to the increase in daily sale volume by 16% from a year ago to 793,000 boe, annual sales guidance has been increased by 2 million boe to the range of 279 to 287 million boe. Meanwhile, Anadarko has received a 300 million cubic feet per day boost from the start-up of its Brasada gas plant. Its two new wells have achieved measured depths of more than 13,0000 feet in 5 days.
Production is certainly going up at a good pace. Although Anadarko is mainly U.S. focused , generating more than 70% of its revenues in the U.S., it is expanding its operations outside the U.S. as well. The business plans to spend $5.5 billion at its home and $1 billion in other countries as capital expenditure. Anadarko is  behind one of the most important gas discoveries of the decade, in Mozambique, with 30 to 65 trillion cubic feet of recoverable natural gas. The company is currently working on an enormous LNG project in the African nation which, I believe, would yield considerable returns to shareholders in the coming years.
Although the company is relatively less likely to beat Wall Street’s expectations in the coming quarter compared to Newfield Exploration and Oasis Petroleum I believe that it is still a very attractive long term investment. In fact, as identified by Jefferies, Anadarko is on top of the ‘buy’ list of almost every other Wall Street firm out there. Out of the three firms, Anadarko would be my pick for long term investors.
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I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours of this publication. I wrote this article myself, and it expresses my own personal opinion. I have no business relationship with any company whose stock is mentioned in this article.