EOG Posts Strong Earnings
EOG Resources Inc. (EOG) reported solid adjusted first-quarter 2013 results on the back of a striking improvement in its high margin crude oil production.
Quarterly adjusted earnings of $1.80 per share exceeded the Zacks Consensus Estimate of $1.13 by 59.3% and were 53.8% higher than the year-ago adjusted earnings of $1.17.
Total revenue in the quarter increased 19.6% year over year to $3,356.5 million and comfortably exceeded the Zacks Consensus Estimate of $2,959.0 million.
Operational Performance
During the quarter, EOG’s total volume expanded 4.6% from the year-earlier level to 42.8 million barrels of oil equivalent (MMBoe), or 475.6 thousand barrels of oil equivalent per day (MBoe/d).
Crude oil and condensate production in the quarter was 187.3 thousand barrels per day (MBbl/d), up approximately 33% from the year-ago level. This was primarily driven by significant contributions from the company’s South Texas Eagle Ford along with Permian Basin southeastern New Mexico and West Texas plays.
Natural gas liquids (NGL) volumes increased 16.4% from the year-ago quarter to 59.5 MBbl/d. On the other hand, natural gas volumes contracted 11.2% to 1,373 million cubic feet per day (MMcf/d) from the year-earlier level of 1,547 MMcf/d.
Average price realization in the first quarter for crude oil and condensates increased approximately 4.4% year over year to $105.61 per barrel. Quarterly NGL prices were down 25.4% to $31.78 per barrel from the year-ago level of $42.62. Natural gas was sold at $3.32 per thousand cubic feet (Mcf), showing an improvement of 27.2% year over year.
Liquidity Position
At the end of the first quarter, EOG had cash and cash equivalents of $1,108.0 million and long-term debt of $6,312.5 million (including current portion), representing a debt-to-capitalization ratio of 31%.
During the quarter, the company generated approximately $1,687.5 million in discretionary cash flow, compared with $1,316.3 million in the year-ago quarter.
Guidance
For the upcoming second quarter of 2013, total production is expected between 468.9 MBoe/d and 505.6 MBoe/d, with 59.5–64.5 MBbls/d of NGL and 1,302–1,394 MMcf/d of gas. For full-year 2013, EOG expects total volume between 463.5 MBoe/d and 506.3 MBoe/d, NGL in the 56.0–66.8 MBbl/d range and natural gas in the 1,287–1,370 MMcf/d range.
For the upcoming quarter as well as full year, the company expects crude oil and condensate volumes in the range of 192.3 MBbls/d to 208.8 MBbls/d and 193.0 MBbls/d to 211.2 MBbls/d, respectively.
Outlook
One of the largest U.S. independent oil and gas exploration and production companies, EOG is proactive with its liquid ventures. These efforts will be further aided by its deep focus on major oil and liquids rich plays, while holding its core natural gas and Combo acreage in the Barnett, Leonard and Wolfcamp plays for the long term.
The company has also maintained its total capital expenditure budget between $7 billion to $7.2 billion for 2013. This compares with the $7.6 billion capex in 2012. Moreover, EOG Resource is keen on its asset divestiture program.
Though we view EOG as a favorable long-term story, the risk-reward pay-off for the company is still uncertain due to its natural gas weighted production and reserves base as well as cost overruns. EOG's large portfolio of high-return projects and strong technical competence are the key long-term drivers.
The company retains a Zacks Rank #3, which is equivalent to a Hold rating for the period of one to three months. However, there are other companies that sports a Zacks Rank #1 (Strong Buy) in the oil and gas industry like InterOil Corporation (IOC), CNOOC Ltd. (CEO), and EPL Oil & Gas, Inc. (EPL) that offer value and are worth buying now.
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