HighPoint Resources [stock_market_widget type="inline" template="generic" color="default" assets="HPR" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock has dropped significantly in 2019 despite promising early signs that it will be able to deliver a solid performance. Shares of the oil producer are down more than 34% in 2019 as investors have ignored the company’s impressive operating profile that it illustrated early in the year, and rightly so.
The stock had tanked more than 11% after its first-quarter earnings were released on May 11 as a weak oil pricing scenario dented its finances. Wall Street didn’t like the company’s operating results as they were hurt big time by the oil price weakness. As such, there’s now a chance that HighPoint might not be able to recover despite positive early signs. Let’s see why.
The Key Indicators Have Gone Red
HighPoint Resources delivered a first-quarter operating loss of $7.4 million as compared to an operating income of $7.8 million in the same period last year. The company struggled on account of a massive spike in its expenses in the first quarter.
HighPoint’s lease operating expenses per barrel of oil equivalent shot up 23% from the prior-year period. What’s more, the company’s gathering, transportation, and processing expenses per barrel of oil equivalent increased 182% year over year. This massive increase in costs was a result of the adverse weather conditions experienced by HighPoint in the Wattenberg and the Hereford areas.
Meanwhile, the combined average realized price per barrel of oil equivalent fell 14% from the prior-year period to $36.35. The lower prices of oil and natural gas liquids played spoilsport for HighPoint during the quarter, though natural gas prices increased 13% year over year.
In all, the combination of higher expenses and lower pricing turned out to be a big problem for HighPoint during the quarter despite a nice bump in the production.
The company reported production of 2.8 million barrels of oil equivalent for the first quarter of 2019. This was 46% higher as compared to the prior-year period. But this wasn’t enough to save the company from delivering a bigger adjusted net loss of $10.7 million during the quarter as compared to the prior-year period’s figure of $5.9 million.
What Next?
It is clear that HighPoint needs to get one thing right in order to get back on track. The first thing is getting its costs under control. Now, there might be some good news on this front given the company’s latest well productivity numbers. According to the press release:
Improving the cost and production profile will help HighPoint improve its bottom line and offset the oil price weakness. So if the company manages to deliver on this front, it might make for a good investment going forward despite its recent troubles.
