Free Annual Reports
3 Energy Companies With No Production Growth
Investors tend to favor exploration and production companies that have rapid growth in production, and often reward these operators with a higher valuation. Here are three companies that were on the other end of the growth spectrum, generating little or even negative production growth in the second quarter of 2011.
TUTORIAL: Commodity Investing 101
Slow Growers
Cimarex Energy (NYSE:XEC) reported average production of 585.7 million cubic feet equivalents per day during the second quarter of 2011, a 1% decline from the same quarter in 2010.
Cimarex Energy is generating excellent production growth from operations in the Permian Basin and Woodford Shale play, but this growth is being offset by a large drop in production from its Gulf Coast operations. Oil and gas volumes from this region fell 38% year over year as a number of existing wells experienced sharp and natural declines in production. The company also reported a dry hole on a recent well and experienced mechanical problems on two producing wells.
Uneven Production
Cimarex Energy's Gulf Coast program is higher risk than the company's other onshore operations and results in lumpy and unpredictable production. The company drilled 106 wells here from 2002 through 2010, with a success rate of 68%. This program is also a small part of the company as Cimarex Energy has allocated only 6% of its $1.5 billion capital budget in 2011.
PetroQuest Energy (NYSE:PQ) was also a little light on production growth year to date, with the company reporting second quarter of 2011 production of 7.4 Bcfe compared to 7.3 Bcfe in the same quarter of 2010. The first six months of 2011 was even worse, with production of 14.7 Bcfe, down from production of 15.1 Bcfe in the comparable period of 2010.
PetroQuest Energy doesn't expect the full year to be much better and reiterated full year production guidance to be in a range of 80 million to 88 million cubic feet of natural gas equivalents per day, approximately flat with 2010.
PetroQuest Energy did report positive news on a discovery in the Gulf Coast area that might set up the company for production growth in the future years. The company has evaluated the La Cantera discovery and confirmed 248 feet of net pay at the prospect. PetroQuest Energy expects first production from here in the final quarter of 2011, and plans to drill a delineation well in 2012 to determine the extent of the hydrocarbons.
Stone Energy (NYSE:SGY) is also involved with this discovery on a non operated basis and has a 33% working interest at La Cantera.
Panhandle Oil and Gas (NYSE:PHX) was also in the no production growth club with the company reporting a 2% decline in the nine months ending June 2011. The management attributed the drop to a reduction in capital expenditures in 2009 and 2010.
Bottom Line
Flat or negative production is never a good thing in the long term, but investors shouldn't overreact to a metric that might be understood better after a more thorough look at the reasons causing the poor production growth. (For additional reading, also take a look at What Determines Oil Prices?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
TUTORIAL: Commodity Investing 101
Slow Growers
Cimarex Energy (NYSE:XEC) reported average production of 585.7 million cubic feet equivalents per day during the second quarter of 2011, a 1% decline from the same quarter in 2010.
Cimarex Energy is generating excellent production growth from operations in the Permian Basin and Woodford Shale play, but this growth is being offset by a large drop in production from its Gulf Coast operations. Oil and gas volumes from this region fell 38% year over year as a number of existing wells experienced sharp and natural declines in production. The company also reported a dry hole on a recent well and experienced mechanical problems on two producing wells.
Uneven Production
Cimarex Energy's Gulf Coast program is higher risk than the company's other onshore operations and results in lumpy and unpredictable production. The company drilled 106 wells here from 2002 through 2010, with a success rate of 68%. This program is also a small part of the company as Cimarex Energy has allocated only 6% of its $1.5 billion capital budget in 2011.
PetroQuest Energy (NYSE:PQ) was also a little light on production growth year to date, with the company reporting second quarter of 2011 production of 7.4 Bcfe compared to 7.3 Bcfe in the same quarter of 2010. The first six months of 2011 was even worse, with production of 14.7 Bcfe, down from production of 15.1 Bcfe in the comparable period of 2010.
PetroQuest Energy did report positive news on a discovery in the Gulf Coast area that might set up the company for production growth in the future years. The company has evaluated the La Cantera discovery and confirmed 248 feet of net pay at the prospect. PetroQuest Energy expects first production from here in the final quarter of 2011, and plans to drill a delineation well in 2012 to determine the extent of the hydrocarbons.
Stone Energy (NYSE:SGY) is also involved with this discovery on a non operated basis and has a 33% working interest at La Cantera.
Panhandle Oil and Gas (NYSE:PHX) was also in the no production growth club with the company reporting a 2% decline in the nine months ending June 2011. The management attributed the drop to a reduction in capital expenditures in 2009 and 2010.
Bottom Line
Flat or negative production is never a good thing in the long term, but investors shouldn't overreact to a metric that might be understood better after a more thorough look at the reasons causing the poor production growth. (For additional reading, also take a look at What Determines Oil Prices?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
Free Annual Reports
