RE:RE:RE:RE:Missed the Street Est Huge thoughUnless you dive down deep the reported earnings are not informative. Their earnings were impared because of unrealized hedging losses because oil prices soared last quarter. If oil prices stayed flat or went down last quarter then their earnings would most likely have been higher, but of course this would not mean we should wish for lower prices just so ARX's EPS would improve.
Because of hedging losses, impairments and reversals and the nature of a commodity market, EPS is not typically a useful metric to evaluate O&G companies. Case in point, during the collapse of Oil prices in 2020 when oil went negative for a period many companies were killing it with regards to their reported EPS because of massive hedging gains... but of course oil companines were the last place you would want to be invested in the spring of last year as many of us know.
The reason I love the O&G sector is that it is so simple to analyze the Finstats, especially the cashflow statement, to get a sense of what is going on - this is because in the oil sector cash is king. Now thinking about it, I would my handle was CashKing instead of CashHungry.
Free Cash Flow is the main thing to consider which is simply funds from operations less sustaining Capex. What you want to know is what are they doing with those free funds and how are they trending. The other key metric to look at is debt levels, because in this market you would like to see the debt going down or at least staying stable.
What is exciting about ARX from a numbers perspective is their commitment to return free funds to shareholders and use the balance to payoff debt. To make such a significant commitment reveals that ARX is very confident in its business, in particular, the ability of its assets to deliver reliable cash for the foreseable future. If you believe that high, or even moderately high oil and gas prices are here to stay, then ARX is an amazing company to be invested in for the long term.