You've probably seen the headlines that EOG beat on profits but missed on revenues. Well, folks, that is a big fat LIE!!! It could be just incompetence on the part of those reporting that info. After seeing EOG's spectacular earnings report, I was shocked to see that their share price did not leap to new highs after hours and delved into the reports to find out why.
First of all, the analysts were significantly off on earnings, as usual. One guy had earnings at $2.38, which was close. Due to the nature of EOG's business and the prices of commodities for Q3, an analyst cannot reasonably have a significant earnings beat with a big miss in revenue. PERIOD!!!
The discrepancy is due to mark-to-market losses on derivatives. Please note that this is a NON-CASH item. Without this derivative $293 million PAPER loss, EOG's revenue would have been $3.83 billion, which is consistent with the total report. EOG had great realized prices on much higher oil production, slightly better prices for NGLs, but lower prices on nat gas as well as lower volumes of nat gas. As a result, a moderate beat on revenues is very consistent with a big earnings beat due to EOG's increasing efficiency and cost savings.
I anticipate a big jump in share price when the market realizes this mistake and Bill Thomas elaborates on the quarter during the earnings call. For this quarter, it should be noted that oil companies that had great earnings and forward guidance saw a nice increase in share price after earnings while those who missed got punished. Hopefully, Thursday will bring to light the truth about EOG's earnings.
It's Mark Papa, retired CEO, present chairman of the board until December 31, and future board member.
I suspect Papa repeated some comments he has made before, and some "expert" jumped on them. Papa has said that the US onshore oil production will not grow like it has in the past and won't make a significant dent in world supplies, that the Permian is not as good as advertised, and that EOG will not continue to grow at 40%. Papa has always touted EOG as the best oil producer with great revenue, growth, and profitability. I'm sure he was not bashing EOG, just giving his conservative views.
I appreciate when someone does the math and makes rational calculations and observations. It seems more than a coincidence that several of the best Bakken operators have recently make big purchases. I suspect they have done the math, too.
In this price environment, the past couple months have also been a big help toward going cash flow positive, not to mention profits. I have a hard time calculating earnings for KOG, but for some of the others I follow, the analysts' estimates are pathetically low. I expect KOG to blow out non-GAAP earnings as well.
Not only are analysts wrong on criticizing KOG for being concentrated in the Bakken, but they are also miserably low on earnings estimates. I'm having a hard time projecting KOG's earnings, but I have OAS at about 91 cents and WLL over $1.30 for Q3, much higher than the "professionals." The information for calculating those numbers is public!!! I'm confident that KOG will exceed their estimates as well. The small investors/traders who put in the time and effort can usually do a better job than the analysts. Consider this: we get paid only when our investments/trades are successful, but the analysts get paid regardless of whether they are right or wrong as long as they spew out information.
OAS is my largest holding, so I am not bashing, just frustrated and venting.
OAS is offering 7 million shares to pay down debt and use the funds for operating expenses. First of all, when dealing with financial institutions, the financial institutions get the better of the deal.
To pay down debt, they incurred the debt in the first place. When a company raises cash, they don't get the full amount. For example, one recent transaction to borrow 1 billion only netted them 983 million. The debt they have is not as good as the recent rates that WLL and KOG got. One percentage point on a billion dollars costs an extra 10 million a year. But that's another story.
Issuing shares generally hurts the stock price, as we see in after hours. It also dilutes the existing shareholders. The financial company makes money on the issuance, often taking a bunch of shares for themselves at bargain prices in addition to their fees and charges.
When OAS uses the money, they pay a penalty for retiring debt early. It's in the most recent 10-Q if you want to check.
If they had issued more shares at 55, this would have been ok, but we are too cheap here at 11-12x forward earnings. My guess is that the offering will be around 43-45, but I hope I'm too low. If the offering is too cheap, some big, insider "friends" of Citi will scoop up the whole offering.
Management is good at finding and extracting oil, but they're very deficient in shareholder-friendly cash management.
I have calculated earnings at $1.45 based on the price of oil, hedges, differential, expected production, and similar expenses as Q2. This is non-GAAP earnings. One time events could skew GAAP earnings.
OAS got slammed today more than a lot of oil companies, and I believe it was guilt by association due to KOG's disappointing earnings report.
OAS's hedges enabled them to take much better advantage of high oil prices, and Tommy Nusz does not make a habit of over promise/under deliver. In addition, OAS Well Services adds profits while reducing operating costs. Their marketing arm should help get better prices for their oil in a higher differential environment. I have their earnings calculated at 85-90 cents for this quarter, well above analysts' estimates.
With the spectacular earnings report and subsequent selloff, today's price action was a welcome relief. After listening and reading the reports, I could only find 3 things that were less than stellar, as opposed to many outstanding things.
First, the East Irish Sea production was again delayed by a couple quarters. That's only a minor issue, in my opinion. Second, they "may" not have such a great increase in production for Q4 as they do more testing to test and prove out acreage. And finally, the price of oil is down from Q3, but it should be noted that WTI averaged around $100 for the month of October, and EOG has been getting better than WTI pricing.
The biggest "disappointment" on EOG's earnings was revenue, but that is not a valid criticism of EOG's quarter. There was a non-cash "loss" of $293 million in mark-to-market hedges. For Q2, there was a non-cash gain of nearly 200 million, so that is a non-issue. With the lower price of WTI crude this quarter, EOG will probably show a non-cash gain of several hundred million for Q4. Their hedges are very good, so cash flow is not an issue either.
Those who glibly cite the PE for EOG are all over the board with estimates, and I think most are wrong. Based on non-GAAP earnings, I have their 2013 PE around 20 and forward PE about 15 with WTI in the mid 90's. Do the math and see what you come up with.
The big story is increased production on better completions and improved efficiencies, and as a result, better earnings and more revenue. Unfortunately, the market has lost sight of those facts and punished shareholders.
Did you notice that he got a special exemption so that he did not have to play by the same SEC disclosure rules other investors/traders/hedge funds do? It gave him a chance to accumulate a significant stake without drawing attention to what he was doing.
Which analyst and which lie? There has been so much bad info about EOG since their earnings that it's frustrating. The biggest lie I am aware of is on revenue when mark-to-market FUTURE HEDGING was considered to be an actual loss and the analysts (like lemmings and parrots) said EOG missed revenues. I still think EOG is trading at 15x 2014 earnings.
jim, I consider "general corporate purposes" as an operating expense, whatever they use it for; it all shows up as an expenditure on the SEC filings and reports. I know OAS is close to cash flow neutral or positive, but not sure if they are currently.
My thoughts exactly! I was wondering why OAS continued to get crushed on no news, but as you note, somebody knew and traded on the insider info. Too bad, because Monday was a classic capitulation bottom.
Hard to tell where it will drop to now, but it should find support around 43 to 44. On the bright side, look what happened to TPLM when they offered a secondary at 6.40.
I wonder if the storm has people thinking that production will be hurt. There is still a lot of concern that Iran and Iraq will flood the market with oil, and there is still a high differential for most US domestic oil.
Fundamentally, with the price of oil steadying around 97 and the LLS/WTI spread around 4-5 dollars, EOG should be doing very well and outperforming their peers. I added a little more today after the dip, only to see it dip farther.
There might be something going on, but I think the street is finally figuring out that the high price of oil is going to translate to stellar revenues and profits in Q3 for the oilers who have favorable hedges, and WLL has some of the best for this price environment. A few weeks ago, I had earnings at $1.20-1.50. Now I have them at $1.35-1.60. The two biggest variables are taxes and the differential.
I'm assuming dd&a and other expenses per boe to remain similar to Q2. Divesting Postle should reduce expenses as management said, but I'm sure there will be expenses to the recent purchase and other items we are unaware of.
The higher target is nice, but they're a little late. When the acquisition was announced, OAS was right around 40. Why did it take so long for them to do the calculations? Answer: you can't trust a ratings agency, analyst, or financial house. Do your own research and due diligence and you'll be much better off. Their target of 60 is very realistic in the next 4 to 6 months if the price of oil remains close to where it is now.
WLL is doing better than most oilers today. Blowout earnings are almost a given. The key is forward guidance and current execution. I'm projecting non-GAAP earnings of 1.40-1.45 on revenue of around 750mm. These are ballpark estimates because we don't get enough info to calculate precise numbers.
jdphelps, you've got that right! The yahoo estimates for EOG for Q3 are 2.02. That's 8 cents lower than Q2. Two things I've learned about EOG--EOG usually lowballs estimates for production, and I underestimate EOG's earnings. I have them at 2.30 to 2.50, and for a change, I think I'm closer than usual. Each earnings call, EOG seems to throw in a nice surprise. This call, I'm looking for at least one of the following: a new green field play, further downspacing projections, an update on the JV with Zaza in the Eaglebine, increased production guidance, and/or a report that their completion techniques will again increase production.
US production of oil has really jumped the past couple months, and I'm sure EOG has a big part in that. They have completed some spectacular wells recently.
I added more today on the dip.
It was a mediocre report. The street knew earnings would far exceed analysts' estimates. Production was ok, but only in line with expectations. The free giveaways to management and employees based on production (not earnings) hurt, but the biggest problem was the differential. Their realized price despite a Nymex average of nearly $106 was under $98. Their interest rate on debt is reasonable. Top line revenue was good. All in all, it was decent, but it will take some good news on the CC tomorrow to move the stock up. The big upside is their new completion technique, which should help increase production, revenue, and profits in Q4 and 2014.
Mark Papa probably knows the Eagle Ford better than anyone else, and he has a pretty good idea about how much oil is there. On the other hand, EOG's Permian land is not the sweet spot, so Papa is not convinced that it is better than Eagle Ford. As technology improves and more data is gathered, these oil fields seem to get better and better. I'm sure Core Labs is accurate on their data, but a big question is how much of that oil is commercially recoverable.