We have reiterated our Neutral recommendation on
Plains Exploration and Production Company
) due to stringent regulations, volatile commodity prices and
unfavorable drilling results. However, we expect the company's
strong balance sheet and liquidity position, strong asset
rebalancing strategy, liquid-rich profile, higher realized oil
prices, and development of onshore assets in several locations,
to some extent mitigate those negatives.
NOBLE ENERGY (NBL): Free Stock Analysis
PLAINS EXPL&PRD (PXP): Free Stock Analysis
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In third-quarter 2012, Plains Exploration and Production
Company's earnings were in line with the Zacks Consensus
Estimate, while revenues were ahead of the projection primarily
due to strong contribution from the Eagle Ford Shale and steady
performance from the Californian operations. The positives were
partially offset by the sale of a few assets and production
cut-back at the Haynesville Shale.
Performance of the oil and gas companies primarily depends on
prices of the commodities, which are currently volatile to a
great extent. A decline in the prices of these commodities would
negatively impact Plains Exploration and Production Company's
revenues and cash flows.
As far as positive factors are concerned, Plains Exploration and
Production Company is enjoying benefits from its asset
high-grading and rotation approach, and is likely to follow this
strategy in the forthcoming quarters. Currently, the company is
concentrating on developing its onshore assets in the Eagle Ford
Shale and several other locations. We believe these initiatives
will strengthen the company's future reserve-pipeline.
In addition, Plains Exploration and Production Company took
several initiatives to boost its financial flexibility and
liquidity position. The company raised its borrowing base from
$1.8 billion to $2.3 billion. In the first nine months of 2012,
cash from operating activities was $1.0 billion, a year-over-year
rise of 13.4%. We believe this financial comfort will allow the
company to pursue aggressive exploration and development
On the flip side, Plains Exploration and Production Company
manages its commodity price risk by hedging production. This
strategy prevents the company from realizing maximum prices if
market price rises over the current hedged prices. However,
derivative contracts also expose it to financial losses if there
is a delay in production or a failure on the part of the
counterparty to satisfy its obligations.
Houston, Texas-based Plains Exploration and Production Company
engages in the acquisition, development, exploration and
production of oil and gas properties, primarily in the U.S.
With a market capitalization of $5.99 billion, the company has
880 full time employees. Like its peer
Noble Energy Inc.
), Plains Exploration and Production Company also has a
short-term Zacks #3 Rank (Hold rating).