Image Source: Memorial Resource Development investor
Memorial Resource Development
are down more than 17% as of noon today. At first glance, the
company's earnings looked pretty solid, but investors who were
hoping to see continued growth in 2016 were likely disappointed
with the company's 2016 guidance.
There are probably a handful of companies that would have given
their left arms for a fourth-quarter result similar to
Memorial. Production increased by 64%, costs decreased, EBITDA
increased compared to the same quarter last year, and the
company remained cash-flow neutral throughout the year.
The big difference for investors, though, was that the
company's net income slides considerably when you consider the
gains from oil and gas hedges. Net income came in at $17
million per share compared to $170 million this time last year.
It may be a big drop, but it's one of the few producers that
can claim to be profitable today.
The reason why investors didn't receive this news well,
though, is because the company's guidance calls for a scaling
back of its spending and production growth. Memorial's
management is expecting to lower its average active rigs to
four on its acreage, down from nine in 2015. Also, the company
is planning on not completing several of its wells in the year
because of lower oil and gas prices. Considering that Memorial
was one of the last bastions in the oil patch putting up large
growth numbers, this one can sting a little.
All in all, Memorial Resource Development had a decent quarter,
especially compared to some of its peers that are teetering on
the verge of bankruptcy. Investors might knock it for its
Memorial Production Partners
-- which posted some big losses after a large asset writedown;
but it seems that today's big price drop is an
The important thing to watch with Memorial in the future is
whether oil and gas prices pick up before some of its hedges
expire. Without the protection of hedges, Memorial's results
won't look as strong.
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