Shares of Eclipse Resources Corp. (NYSE: ECR) surged more than 11% by 3:30 p.m. EDT on Thursday after the natural gas driller reported surprisingly strong third-quarter results.
Eclipse Resources recorded $11.1 million, or $0.04 per share, of adjusted net income in the third quarter, which was well ahead of the $0.02-per-share loss analysts expected. While companywide production slipped about 2% year over year, the company's output of higher-margin natural gas liquids and oil surged 34% and 104%, respectively, due to strong production results from wells drilled into liquids-formations in the Marcellus and Utica shale regions.
In addition to the increased output of higher margin products, Eclipse also benefited from lower production costs. One driver of the expense reduction was the recent completion of Energy Transfer's (ET 0.40%) Rover system. Eclipse Resources not only used the capacity it contracted on the Energy Transfer pipeline to reduce its transportation costs, but also took advantage of underutilized capacity from competitors to move more of its production to higher valued markets, which increased its margins.
Eclipse Resources is merging with Blue Ridge Mountain Resources in a deal that will create one of the largest Utica Shale-focused drillers. Eclipse estimates that the combined company can grow production at a more than 20% annual rate going forward while living within its cash flow. While that makes it an intriguing natural gas stock, the sector has several issues to work through. That's why investors might want to put Eclipse Resources on their watchlist for now and consider buying one of these top energy stocks instead.