LEGMAKER (< 20)

QRCP buy into earnings

May 17, 2008 – Comments (2) | RELATED TICKERS: QRCP

For the natural gas exploration and production companies the next few quarters could be good as prices are likely to stay high based on valuation with oil.  I have been trying to find companies that look good going forward, that have a decent production and long term reserves.  I believe that the current commodity scenario is very bullish going forward and will continue to be. 

QRCP is the largest producer of natural gas in the Cherokee Basin of southeast Kansas and northeast Oklahoma.  In this area they have control of the entire natural gas chain.  As with many natural gas companies this one has experienced growth.  When looking at the average net daily production it is seen that since year end of 2004 and to nine months ended in 2007 the CAGR is 24%.   Over the same period of time the company’s net producing wells have increased from 802 to 2064.

            The key to this company is integration.  The control all aspects of their production chain and this includes leasing, drilling operations, production, gathering, marketing and interstate transmission.   Their current savings from their restructured field teams, and increased equipment utilization have helped this company increase 2007 wells by 575 without an increase in lease operating expense.  This increases long term value through decrease in time delays, decreases chance of gas service costs, and allows for exporting to other regions.  This company also offers an attractive tax deferred situation. 

            When looking at this stock’s performance going into earnings, there is a large difference in the two analysts on Yahoo Finance and their estimated earnings.  This quarter’s earnings growth is estimated at 10 cents per share versus negative ten cents last year.  Of the two analysts surveyed with respect to this site one has estimates of a penny while the other is at 20 cents.  This is important as the wide variance will price a large move into the stock for earnings.  If we look at last quarter the analysts had the company making two cents for the quarter and they came in at 52 cents.  I do not believe they will come in that good, but there is reason to believe they could do well.  This company currently has 80% of its production hedged and will continue to do that through next year at least.  

Overall, I am bullish this company based on their increase of wells online, and production increases that look to be here for a while.  Also, they beating of earnings last quarter and their chart appear to be in a situation where if they beat earnings it could be a large move upward.  I believe this stock will head upward for the next month at least, but should be bolstered by bullish natural gas pricing.