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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (158500)	10/14/2011 9:39:45 AM
From: Dennis Roth	4 Recommendations Read Replies (7) \| Respond to of 206325

Third Quarter 2011 Earnings Preview North America Exploration Production EPS/CFPS Slip on Weakening Commodity Prices 14 October 2011 ¦ 75 pages citigroupgeo.com EPS/CFPS Drop Sequentially on Weakening Commodity Prices – On average, Q3’11 EPS/CFPS for our coverage group are projected to be up 62%/17% versus Q3’10, as an 18% increase in WTI spot oil prices and a 6% increase in total output more than offset a 3% drop in realized natural gas prices, and an 8% increase in total per-unit costs. Adjusted for acquisitions/divestitures, we estimate “organic” production increased ~7% year over year and ~4% sequentially. However, on a sequential basis, we estimate Q3’11 EPS/CFPS will be down 9% and 3%, respectively, versus the second quarter, largely due to a 12% sequential drop in WTI crude oil prices as fears of supply shortages which dominated the spring months gave way to concerns about global demand growth, with the credit situation in Europe deteriorating further, the U.S. economy remaining in anemic territory, and the markets closely scrutinizing any signs of cooling in the Chinese economy. Natural Gas Production/Prices – Despite the ongoing rush to liquids, North American natural gas production for our coverage group is projected to have increased 5.3% versus the year-ago period, nearly matching liquids growth. Further, we expect daily gas output to also be up 2.1% sequentially, largely due to “lumpiness” of production growth in the infrastructure-constrained shale gas plays such as the Eagle Ford and the Marcellus. Importantly, Q3 natural gas spot composite prices averaged $4.08/MMBtu, down 5% sequentially, thus defying the typical seasonal trend for natural gas prices to bottom out during the spring shoulder months. Composite spot natural gas prices were down 2% year- over-year and with a similar hedging impact versus last year, gas price realizations are expected to be down 3% versus Q3’10. Operating Costs Up Year Over Year, But Abating In Recent Months – Per-unit costs (including production taxes) are projected to have risen 8% year over year, but to have dropped 2% sequentially. Importantly, both per-unit LOE and G&A are projected to have risen ~9% year over year due largely to endeavors to shift production toward more expensive oil/liquids plays and as companies rush to hire more engineers/geologists to pursue expansion into new shale plays. However, even as G&A has continued to climb throughout the year (expected up 4% sequentially), LOE appears to have now topped out (-1% sequentially) as raw material inflation abates with softening commodity prices. 2011 Capital Budgets – At this juncture, 2011 E&D budgets for our coverage group are pegged to be up ~24%, on average, over 2010, which equates to 108% of projected operating cash flows. Last year, E&D spending outpaced cash flow by 9% although total capital outlays, including acquisitions, exceeded cash flow by over 50%, with this outspend funded by asset sales, up-front joint venture payments and equity issuances. Adjusting Estimates – We are adjusting our estimates to reflect actual third quarter natural gas and crude oil price realizations along with other fine tuning to our models. Thus, our EPS/CPFS projections, on average, decline 3%/6% and are 3%/2% lower, on average, than the First Call consensus. Versus consensus, we expect APA, NFX, and UPL in particular to beat consensus, while CNQ, DVN, and TLM are expected to fall short. Favorite Names – Our favorite names at this juncture are APC, APA, and CXO.