EP Energy Corp. (NYSE: EPE) Banks Its Renewal On Cost Curtailment


An efficiency drive is taking the center stage at EP Energy Corp (NYSE: EPE) as the company tries to shake off the burden it took on following the collapse of crude prices. The 1Q2016 demonstrated that EP Energy is faring well in its renewal efforts as EPS far exceeded expectations and management eliminated a large portion of outstanding debt.

What transpired in 1Q2016?

EP Energy Corp (NYSE: EPE) posted adjusted EPS of $0.19, far ahead of the consensus estimate of $0.01 for the quarter. The stronger-than-expected EPS was a direct consequence of the ongoing expenses reduction and operational efficiency drive.

EP Energy generated free cash flow of $122 million during the quarter.

What happened to the balance sheet?

EP Energy Corp (NYSE: EPE) was able to retire $609 million principal debt amount for just $287 million, thus saving $322 million and escaping $50 million in annualized interest expenses. Overall, the company eliminated $800 million in debt to bring its debt position down to $4 billion. Looking at the still outstanding debt amount, there is still much ground for the company to cover in terms of strengthening the balance sheet, but that is what management has committed to doing this year.

Improving liquidity

According to CEO, Brent Smolik, they are dedicating 2016 to improving liquidity. The company is using internal efficiency improvement and economic conditions to enable it to strengthen its balance sheet. The $122 million in free cash flow in 1Q2016 is testament to EP Energy’s efforts paying off. The company finished 1Q2016 with liquidity position of about $250 million.

EP Energy also managed to get its lenders to agree to reset its borrowing to $1.65 billion, thus further boosting its liquidity and relaxing its debt covenants.

Improving commodity prices

With hopes that OPEC members meeting next month will agree to freeze crude output, oil prices have been rallying up in the recent times. EP Energy Corp (NYSE: EPE) hopes to use the improvement in commodity prices to accelerate the attainment of its liquidity targets.


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