Shares of oil and gas exploration and production company Lilis Energy (LLEX) are up 17.8% as of 1 p.m. EDT today. The stock surge follows the company's second-quarter earnings report and guidance for the year.
Lilis Energy reported a second-quarter loss of $33.6 million, or $0.53 per share, compared to Wall Street estimates for an $0.05 per-share loss. Adjusting for noncash writedowns and other adjustments, that loss was $0.17 per share.
Even though the company came up woefully short of earnings estimates, the company did report some good news this past quarter that should encourage investors. The company was able to negotiate firm takeaway contracts for its oil production via a pipeline gathering network. Also, Lilis negotiated a fracking water-gathering disposal contract that allows it to use local pipeline networks. These contracts will reduce crude gathering and water costs by 86% and will save Lilis $16.7 million annually.
Management also announced that the company's current production rate is 7,300 barrels of oil equivalent per day (BOE/D) and expects daily production to be 8,000 BOE/D at the end of the year. Proved reserves were also up 228% compared to December 2017 as the company assesses its acreage positions.
Lilis has a small but lucrative average position right in the heart of the Permian Basin, and the deals it signed to reduce costs are quite impressive. That said, it is still a very small producer that only has a couple of operating wells, so it is extremely sensitive to prices. Also, the company's debt load is a little high relative to its size, which could make things troublesome should oil prices decline for some reason.
While there is an opportunity to ride this stock should oil prices remain where they are, this is an extremely speculative investment that could easily turn into a portfolio dud.