If you read an earnings report or listened to conference call this quarter, you might have heard a recurring theme. Or at least I did, as almost every company I followed this earnings season blamed Mother Nature for missing analyst estimates. What was interesting is that this time it wasn't the retailers that were using the weather as an excuse. Instead, companies engaged in oil and gas production were the ones complaining about the weather.
On Heckmann's (NYSE: HEK ) recent conference all, the frack-water treatment specialist made mention of the weather nearly two dozen times. The executive chairman led off the call by saying, "As you can see by our release, we had a very strong quarter in the face of fairly tough weather." The company missed analyst estimates on both the top and bottom lines, and "without question weather was the biggest factor for the first quarter," according to CEO Mark Johnsrud.
In fact, weather was so bad in its operating areas that Johnsrud went on to say: "Unusually harsh conditions in the Bakken affected approximately 13 days of work or almost 15% of the quarter. Additional to that is we lost approximately five days of work in the Marcellus due to inclement weather." When you put into context that those areas represent two of the company's largest operating basins, the fact that it missed revenue expectations by 4.4% isn't that big of a deal.
Heckmann, as I said, wasn't the only company that had a problem with the weather last quarter. Oil and gas producer LINN Energy (NASDAQ: LINE ) had a number of issues in the quarter, with the weather negatively affecting its production volumes during the quarter. The company specifically pointed to severe winter weather in February and March that hit its operations in Oklahoma and Texas that caused the company significant production and drilling delays.
LINN's experience in the quarter was similar to that experienced by SandRidge Energy (NYSE: SD ) ; however, its weather-related impact wasn't as great. CEO Tom Ward noted that the company's "operations team continues to perform very well, as we curtailed only 100,000 Boe from the two major storms that hit Oklahoma and Kansas during the first quarter where we had one time over 400 wells offline." What's different here is that SandRidge exceeded estimates, which is why it was able to trumpet the fact that it was able to take whatever Mother Nature threw its way in the quarter.
Source: SandRidge Energy.
The first quarter is a notoriously slow one for the oil and gas industry, because the weather really does play a factor. However, the weather this past quarter was worse than most energy companies were expecting. BreitBurn Energy Partners (NASDAQ: BBEP ) COO Mark Pease pointed to this fact in his remarks on the company's conference call. In talking about its production in Wyoming, he said that lower production at its gas wells was "primarily due to the harsh winter weather, which increased downtime compared to forecast." He went on to say that the company "typically experienced lower production in the first half of the year for our operations in states with winter weather conditions." He continued: "Because of the additional cost of working in the winter season, drilling activity was relatively slow." One thing was clear in the quarter: While bad weather was anticipated, the weather was worse than anyone projected.
That being said, BreitBurn, LINN, and Heckmann all share one thing in common. Each missed earnings expectations and all made mention that the weather was a factor. I'm not saying that it wasn't, but what's interesting is that SandRidge, too, pointed to some problems with the weather, yet it didn't have any trouble meeting expectations. I say this not to suggest that anything is amiss at the companies that missed, but just to point out that when a company like SandRidge can beat the numbers despite the weather, it's a reason to boast.
It's quite obvious that weather legitimately affected these businesses, yet not all were affected to the same degree. In this case, SandRidge simply had the strongest quarter which is why the company was able to overcome the weather issues. That's interesting when you consider that SandRidge is the least diversified of the group operating really in only two regions.
It just goes to show that when your business is doing well, nothing can stop it, and when things are a little light, well, just blame it on the weather.
Despite having to battle the weather this quarter SandRidge was able to deliver above expectations. Overall, SandRidge, which is focusing on growing it liquids production has a future that looks really optimistic. If you'd like to learn more about the future of this emerging oil and gas junior and are looking to find out more about its strengths and weaknesses, then check out The Motley Fool's premium research report detailing SandRidge's game plan and what to expect from the company going forward. To get started, simply click here now!
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