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Is Energen’s Rally Justified after Its 1Q16 Earnings Release?

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Part 2
Is Energen’s Rally Justified after Its 1Q16 Earnings Release? PART 2 OF 4

Energen’s 1Q16 Operational Performance, Management Strategies

Energen’s 1Q16 operational performance

For 1Q16, Energen (EGN) reported total production of 54.2 MBoepd (thousand barrels of oil equivalent per day), which is higher than its 1Q16 production guidance midpoint of 53 MBoepd.

Energen&#8217;s 1Q16 Operational Performance, Management Strategies

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Energen’s 1Q16 production is lower by ~23% when compared with 1Q15 production of ~70 MBoepd. Sequentially, EGN’s 1Q16 production is lower by ~16% when compared with 4Q15. All of Energen’s production came from the Permian Basin.

Other upstream companies are also active in Permian Basin, including:

  • Approach Resources (AREX)
  • Callon Petroleum (CPE)
  • Clayton William Energy (CWEI)
  • Diamondback Energy (FANG)
  • EP Energy (EPE)
  • Laredo Petroleum (LPI)
  • RSP Permian (RSPP)

The Vanguard Energy ETF (VDE) invests in the broader energy market whereas the Energy Select Sector SPDR ETF (XLE) generally invests at least 95% of its total assets in oil- and gas-related equities from the S&P 500 (SPY).

Energen’s updated production guidance for 2016

For 2Q16, Energen expects its total production in the range of 56–56.4 MBoepd. For 2016, Energen has increased its production guidance by 1.3% to a new range of 54.1–56.1 MBoepd. Energen’s 2016 production guidance midpoint is lower by ~16% when compared with its 2015 production of ~65.8 MBoepd.

Among the other upstream companies, EP Energy (EPE), Encana (ECA), Approach Resources (AREX), and Clayton William Energy (CWEI) are also expecting respective ~14%, ~15%, ~18%, and ~25% year-over-year decreases in their 2016 production volumes.

Energen’s updated capital program for 2016

For 2016, Energen has increased its drilling and development capital by $100 million–$150 million to a new range of $350 million–$400 million. The reason for this increase is that Energen plans to build an inventory of DUCs (drilled but uncompleted wells), which should be available for completion in 2017.

Energen invested ~$20 million through April 30, 2016, to acquire 3,700 net acres in the Midland and Delaware basins. In February 2016, Energen raised ~$381 million from a public offering of its common stock. For more information, please read The Rationale behind Energen’s Equity Offering to Pay Debt.

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