QEP Resources (QEP) Q2 Loss Lower Than Expected, Sales Miss

Independent energy explorer QEP Resources, Inc. (NYSE:QEP) reported second-quarter 2017 loss per share – excluding special items – of 12 cents, narrower than the Zacks Consensus Estimate of a loss of 19 cents. The company had reported adjusted loss of 23 cents per share in the year-ago quarter. The improvement in year-over-year results was primarily driven by decrease in overall operating expenses and increased overall realized price.

Quarterly revenues of $383.7 million missed the Zacks Consensus Estimate of $411 million as volumes remained stagnant but increased 15% from second-quarter 2016.

Volume Analysis

QEP Resources’ overall production in the quarter came in at 13,860.6 million barrels of oil equivalent (Mboe) – essentially flat from the year-ago period. Natural gas volumes increased 6.8% year over year to 45.8 billion cubic feet (Bcf), whereas liquid volumes declined 7.5% to 6,225.2 thousand barrels.

Although production in the Permian Basin increased 23% year over year and 38% sequentially, lower production and fewer completions in the Williston Basin and Pinedale dampened overall production in the second quarter.

Notably, QEP Resources had divested its Pinedale assets for $740 million as part of its portfolio optimization process.

Realized Prices

QEP Resources’ average realized natural gas price in the quarter was $2.82 per thousand cubic feet, up 12.4% from the year-ago quarter price of $2.51. Moreover, average oil price realization improved 6.9% year over year to $46.72 per barrel. Overall net realized equivalent price averaged $27.37 per barrel of oil equivalent in the quarter, up 6% year over year.

Price Performance

QEP Resources stock has lost 20.5% in the second quarter of 2017, underperforming the 16.9% fall of the industry it belongs to.

Operating Expenses and Capital Expenses

Total operating expenses for the quarter decreased to $404.4 million from $425 million a year ago, reflecting a reduction of 4.9%. The reduction is primarily attributed to a decrease in purchased oil and gas expense along with general and administrative expenses.

Capital investment, excluding acquisitions, was 257% up year over year to $306 million for the second quarter.

Permian Basin in Focus

QEP Resources has shifted its focus to the Permian Basin, for which it invested $41.5 million in its midstream infrastructure in the region. It is following the footsteps of oil companies like American Midstream (NYSE:AMID) , Apache Corporation (NYSE:APA) and Chevron Corporation (NYSE:CVX) . QEP Resources has also agreed to buy $732 million worth of oil and natural gas properties in the area from an undisclosed seller. Net production from the assets is 635 Boe/d, of which 71% is oil. QEP Resources expects total net recoverable resources in the area to be around 295MMBoe. The asset includes 730 potential horizontal drilling locations.

The company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Balance Sheet

As of Jun 30, 2017, QEP Resources had cash and cash equivalents of $178.8 million. The company’s long-term debt (including current portion) was $1,889 million, which represents a debt-to-capitalization ratio of 34.2%.

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