Oil and gas company Plains Exploration & Production Co. (PXP) has decided to reduce its operation in the Gulf of Mexico (GOM) area. The company has plans to sell $2 billion worth of assets in the GOM with a view to align capital spending with operating cash flow.
Plains has a substantial presence in the GOM with a few of its assets performing per expectations. Again, some assets are in a development stage and need capital spending while the company is unsure about the time and capital required for those assets to break-even.
Plains’ decision to trim down operations in the GOM area was also perpetuated by the uncertain regulatory environment in that region. Plains intends to invest the proceeds from the GOM asset sale in its onshore operations in the years to come, as the gas price fundamentals change to the positive.
With this strategic end in mind, the company has studied its operations in the GOM region. Plains has engaged Barclays Capital and Jefferies & Company for advice regarding the proper utilization of its assets in the GOM along with reduction of capital expenditure and rationalization of capital.
The adjusted earnings of Plains at the end of second-quarter 2010 were 26 cents a share compared with 60 cents a share at the end of second-quarter 2009. The Zacks Consensus Estimates for third-quarter 2010, fiscal year 2010 and fiscal year 2011 are a respective 27 cents per share, $1.10 per share and $1.74 per share.
The major competitors of the company are Anadarko Petroleum Corporation (APC), Chesapeake Energy Corporation (CHK) and Pioneer Natural Resources Co. (PXD). During the second quarter, the reported earnings of Plains were in line with the consensus, while the earnings of its peers exceeded projection.
We retain a short-term Zacks #3 Rank on the stock, which translates into a Hold rating. We retain a long-term Neutral rating on the stock as we believe that supply and demand fundamentals with respect to both crude oil and natural gas will prevent exploration and production stocks from making a significant move to the upside.
Based in Houston, Texas, Plains Exploration & Production engages in the acquisition, development, exploration, and production of oil and gas properties primarily in the United States.
ANADARKO PETROL (APC): Free Stock Analysis Report
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
PIONEER NAT RES (PXD): Free Stock Analysis Report
PLAINS EXPL&PRD (PXP): Free Stock Analysis Report
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