Shares of Alta Mesa Resources (AMR) are plunging today, down 17.7% as of 11:45 a.m. EDT, after the oil and gas exploration and production company posted second-quarter earnings that fell well short of Wall Street expectations.
Alta Mesa reported a net loss of $0.04 per share compared to analysts' expectations of a per-share profit of $0.10. While the company was able to grow production significantly -- July production was 50% higher than the beginning of the year -- and volumes of gas fracking water were up across its set of pipeline assets, low price realizations because of some unfavorable futures contracts and higher costs ate away at any chance of generating a positive return.
Management tried to put its best face forward by raising production guidance for the full year, adding an additional drilling rig to its capital spending plan, and expanding its midstream footprint, but these capital spending plans are more than likely going to outstrip the company's cash-generating ability.
Alta Mesa is in a pinch right now, as it has several oil futures contracts in place to sell oil at steeply discounted prices to current rates. These contracts are going to create significant losses for the rest of the year despite the increased production management has planned. For investors today, there isn't a lot of incentive to buy Alta Mesa's stock when there are other oil and gas production companies that are in much better positions to succeed in North American shale.