Rice Energy had plenty of cause to celebrate after delivering
its first quarterly report as a public company on Tuesday.
The independent shale oil and natural gas explorer's stock
climbed 6% by the closing bell on those results and on bright
prospects for future production and wells coming on line.
Revenue of $102.4 million handily topped forecasts for $76.6
million as the company upped natural gas production and benefited
from higher prices.
Diluted earnings per share came in at 99 cents. Excluding
extraordinary items, according to Thomson Reuters, EPS of 16
cents topped the 13-cent consensus view of analysts. It noted the
extraordinary items as a loss on derivative instruments and a
gain on the purchase of a Marcellus Shale joint venture.
Appalachia Shale Searcher
Rice Energy (
) operates in the Appalachian Basin. As of Dec. 31, the driller
had around 43,000 net acres of leasehold in the Marcellus Shale
in southwestern Pennsylvania and about 47,000 net acres of
leasehold in the Utica Shale in southeastern Ohio. The bulk of
the company's production is in gas.
Wall Street gave Rice high grades on its first quarterly
report card since its stock began trading on the NYSE on Jan.
The company has been on a roll. Its stock has surged around
45% from the IPO price of 21, making Rice the fourth best in IPO
performance since January, according to Cindi Profaca, managing
director of IPOfinancial.com.
Analysts expect Rice to continue its growth spurt. They see
full-year EPS, after adjustments, of 64 cents, with an 83% gain
to $1.17 in 2015 and a 21% gain to $1.41 in 2016.
"It was a strong quarter driven by strong realized pricing,
production execution and lower operating costs," Rice Chief
Financial Officer Grayson Lisenby said on a conference call with
The company's first-quarter gas production climbed 135% from a
year earlier and 36% from the fourth quarter of 2013.
Its first-quarter production mix was 100% natural gas and its
average realized pricing, including the impact of hedging, was
$4.82 per Mcf (thousand cubic feet of gas).
The company has brought on line 10 Marcellus wells this year
and recently completed its first Utica well, which it expects to
bring on line this quarter. "To me the biggest thing coming out
of this (first-quarter report) is they're going to test their
first Utica well in the next couple of weeks," Johnson Rice &
Co. analyst Charles Meade told IBD. "It's their first well in the
play. It's a 40-stage horizontal well and they've said the rock
looks good. I think people want to be in the stock before what
they expect to be a positive data point."
Overall, Rice has a good position in the shale plays where it
operates, wrote SunTrust Robinson Humphrey analyst Neal Dingmann
in a report: "Rice is one of the premier operators in the
Marcellus shale and has a core position in the Utica shale's high
rate-of-return dry gas area within Belmont County, Ohio, in close
proximity to some of our other favorite names, includingGulfport
),Antero Resources (
) andMagnum Hunter Resources (
Rice supports its exploration and development by its own
operated natural gas low- and high-pressure gathering,
compression and transportation assets, as well as by third-party
arrangements, according to a company filing with the SEC.
"Unlike many producing basins in the U.S. certain portions of
the Appalachian Basin do not have sufficient midstream
infrastructure to support the existing and expected increasing
levels of production," the filing said. "Actively managing these
midstream operations enhances our ability to obtain the necessary
takeaway capacity for our production. The company has invested in
building low- and high-pressure gathering lines and water
Dingmann says one of Rice's main strengths is the fact that it
has its own midstream infrastructure.
"They provide their own midstream (infrastructure) to ensure
they have ample takeaway for all the gas they've been drilling,"
he told IBD.
In Pennsylvania, Rice recently acquired "gathering assets" in
eastern Washington and Green counties from M3 Appalachia
Gathering for $110 million.
"The M3 Appalachia transaction represents a unique opportunity
for Rice that is consistent with our strategic focus of
proactively investing in our midstream to facilitate our upstream
growth," Rice CEO Daniel Rice IV said in a press release. "In
addition to acquiring a strategic gathering system supported by
third-party contracts, the footprint of the northern system
provides us with the opportunity to accelerate development
drilling and strengthen our leasing efforts in a key operational
The deal improves the company's infrastructure to support its
Marcellus production growth in southwestern Pennsylvania, Rice
Dingmann is positive about the pact: "Though some initially
questioned the deal, we believe it is an opportunistic
acquisition that secures gathering capabilities across Rice's
entire southwest PA acreage and also adds some long-term third
party contracts," he wrote in a report. "The added pipeline
should allow for accelerated activity at some point and reduce
future midstream (capital expenditures)."
Also during the first quarter, Rice tapped the high-yield bond
market at "favorable rates, allowing us to replace existing debt
with lower rates and providing an incremental $581 million of
liquidity that can be used to fund our 2014 capital expenditures
program," CEO Rice noted.