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 ( RICE ) 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. 24.
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 analysts.
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 Energy ( GPOR ),Antero Resources ( AR ) andMagnum Hunter Resources ( MHR )."
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 pipeline systems."
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 area."
The deal improves the company's infrastructure to support its Marcellus production growth in southwestern Pennsylvania, Rice added.
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.
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