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4 Energy Companies That Missed On Production
The energy business is inherently unpredictable, which makes it difficult for exploration and production companies to issue accurate long-term production estimates. Despite this obstacle, the industry continues to issue guidance on this metric, which leads to inevitable investor disappointment, when a company fails to meet its production goals.
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Production Cuts
SandRidge Energy (NYSE:SD) trimmed its production guidance for 2011 and now estimates that the company will produce 23.4 million barrels of oil equivalent (BOE) for the year. This was a 500,000 BOE reduction from current guidance. (For related reading, see Oil: A Big Investment With Big Tax Breaks.)
SandRidge Energy attributed the cut to infrastructure constraints in the Central Basin Platform area of the Permian Basin. The company experienced some underperformance in operations in the Gulf Coast, Gulf of Mexico and the Pinon Field and is also having problems with low pressure gathering systems, operated in the Permian Basin. The company has been adding so many new high pressure wells to the system, that older, mature wells have gone off line.
Quicksilver Resources (NYSE:KWK) lowered guidance and now expects 2011 production to be in a range from 415 million to 420 million cubic feet of natural gas equivalents per day; this was down from the original guidance range of 425 million to 435 million cubic feet of natural gas equivalents per day.
Quicksilver Resources said that the lower production was due to delays in obtaining hydraulic fracturing services to complete wells in the Barnett Shale. The company experienced the well delays at its Lake Arlington project area, a 5,000 net acre project in Tarrant County. The Barnett Shale is a core area for Quicksilver Resources, and the company has 155,000 net acres under lease and 2.6 Tcfe of proved reserves here, at the end of 2010.
In Oct. 2011, Talisman Energy (NYSE:TLM) experienced problems in its North American and North Sea operations and reduced 2011 production guidance to 425,000 BOE per day. The previous range given by the company was from 430,000 to 440,000 BOE per day.
While some investors assumed that another cut might have been issued, along with third quarter 2011 earnings, Talisman Energy reiterated its 2011 production guidance on the strength of the company's North American Shale activity. The company is operating thirty rigs and expects daily production to average 490 million cubic feet of natural gas equivalents per day, for the year.
Another company that disappointed investors on production was Carrizo Oil and Gas (NYSE:CRZO), which reported production of 11.3 billions of cubic feed equivalent (BCFE) in the third quarter of 2011. The company blamed lower production from non-operated Barnett Shale wells and steeper declines from wells in the Gulf Coast.
Despite this shortfall, Carrizo Oil and Gas still expects to achieve its goal of increasing crude oil and liquids production to 5,000 barrels of oil per day, by the end of 2011. This growth is being led by the development of the Eagle Ford Shale, Marcellus Shale and Niobrara formations.
The Bottom Line
Production growth is a major goal of most exploration and production companies. Estimating future production levels is a complex task that many operators fail to achieve; this trend continued in the third quarter of 2011. (For related reading, see A Guide To Investing In Oil Markets.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.
Production Cuts
SandRidge Energy (NYSE:SD) trimmed its production guidance for 2011 and now estimates that the company will produce 23.4 million barrels of oil equivalent (BOE) for the year. This was a 500,000 BOE reduction from current guidance. (For related reading, see Oil: A Big Investment With Big Tax Breaks.)
SandRidge Energy attributed the cut to infrastructure constraints in the Central Basin Platform area of the Permian Basin. The company experienced some underperformance in operations in the Gulf Coast, Gulf of Mexico and the Pinon Field and is also having problems with low pressure gathering systems, operated in the Permian Basin. The company has been adding so many new high pressure wells to the system, that older, mature wells have gone off line.
Quicksilver Resources (NYSE:KWK) lowered guidance and now expects 2011 production to be in a range from 415 million to 420 million cubic feet of natural gas equivalents per day; this was down from the original guidance range of 425 million to 435 million cubic feet of natural gas equivalents per day.
Quicksilver Resources said that the lower production was due to delays in obtaining hydraulic fracturing services to complete wells in the Barnett Shale. The company experienced the well delays at its Lake Arlington project area, a 5,000 net acre project in Tarrant County. The Barnett Shale is a core area for Quicksilver Resources, and the company has 155,000 net acres under lease and 2.6 Tcfe of proved reserves here, at the end of 2010.
In Oct. 2011, Talisman Energy (NYSE:TLM) experienced problems in its North American and North Sea operations and reduced 2011 production guidance to 425,000 BOE per day. The previous range given by the company was from 430,000 to 440,000 BOE per day.
Another company that disappointed investors on production was Carrizo Oil and Gas (NYSE:CRZO), which reported production of 11.3 billions of cubic feed equivalent (BCFE) in the third quarter of 2011. The company blamed lower production from non-operated Barnett Shale wells and steeper declines from wells in the Gulf Coast.
Despite this shortfall, Carrizo Oil and Gas still expects to achieve its goal of increasing crude oil and liquids production to 5,000 barrels of oil per day, by the end of 2011. This growth is being led by the development of the Eagle Ford Shale, Marcellus Shale and Niobrara formations.
The Bottom Line
Production growth is a major goal of most exploration and production companies. Estimating future production levels is a complex task that many operators fail to achieve; this trend continued in the third quarter of 2011. (For related reading, see A Guide To Investing In Oil Markets.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.
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.
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