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Here's Why Bill Barrett Corporation's Stock Is Popping Today

By Matthew DiLallo – Updated Nov 4, 2016 at 11:36AM

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The driller’s third-quarter report revealed several surprises.

Image source: Getty Images.

What happened

Shares of Bill Barrett (HPR) jumped on Friday morning and were up 14% by 10:45 a.m. EDT.

So what

Fueling today's gains was Bill Barrett's third-quarter earnings report. While the company reported an adjusted loss of $6.2 million, or $0.10 per share, that was $0.03 per share better than analysts expected. Driving that expectation-beating result was the fact that production was at the upper end of the company's guidance range and it delivered a 42% improvement in lease operating expenses (LOE) from just last quarter.

One of the reasons LOE came down so much in such a short amount of time is that Bill Barrett sold higher-cost Uinta Basin properties during the quarter. Because of that, as well as its ability to drive down costs elsewhere, it is lowering its full-year LOE guidance from a range of $31 million to $34 million down to $29 million to $31 million.

The company also noted that it had restarted its DJ Basin development programs, with plans to drill up to 15 extended reach laterals (XRL) by year-end. It resumed drilling because XRL wells deliver "attractive economic returns in the current commodity price environment." Drillers are finding that drilling longer wells are a key to improving economics. For example, fellow DJ Basin driller Whiting Petroleum (WLL) noted that its longer lateral wells in the play have the "potential to deliver approximately 40% higher reserves for only a 12.5% increase in cost relative to its standard" well. That is why Whiting Petroleum, like Bill Barrett, is concentrating on drilling longer wells to get the most production and reverses out of its capital dollars.

Now what

Bill Barrett is positioning itself to deliver improving results in 2017. Despite boosting its budget to start drilling those DJ Basin wells, the company will generate excess cash flow this year. Furthermore, with $174 million in cash, an undrawn credit facility, and a strong hedge position, it has ample liquidity to ramp activities next year if conditions warrant an increase.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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