EOG Resources (NYSE: EOG) delivered a solid finish to 2018 as both oil and natural gas liquids (NGL) production exceeded the midpoint of its guidance range. That strong output enabled the company to generate robust cash flow during the quarter, helping it produce record free cash flow for the year. The oil company expects more of the same in 2019 as it remains well positioned to continue expanding output at a healthy rate while generating significant free cash flow.
Drilling down into the results
Guidance or Expectations
Difference at the Midpoint (Shortfall)
430,300 barrels per day (BPD)
425,000 to 430,000 BPD
Adjusted earnings per share
Data source: EOG Resources.
EOG Resources' oil production exceeded the high end of its guidance range during the fourth quarter, rising 17% year over year. That strong finish to the year enabled EOG to produce an average of 399,900 BPD during 2019, a 19% increase from 2017. NGL production was also up sharply, rising 31% in 2018, which helped boost total output by 18%.
The main production growth driver was the company's position in the Delaware Basin, where oil output surged 47% to 126,800 BPD as the company made significant progress in improving well productivity. EOG also delivered solid growth in the Eagle Ford, where production rose 9% to 171,000 BPD last year.
While EOG's earnings came in a bit below expectations, that's due mainly to lower oil prices since operating expenses fell compared with the year-ago period. Cash flow, meanwhile, came in strong at $2.1 billion, which was more than enough to cover the company's $1.5 billion in capital spending. That enabled EOG to produce $637 million in free cash flow during the quarter, which pushed its full-year total to a record $1.7 billion. Most of that ended up on the balance sheet as EOG finished the year with $1.6 billion in cash against $6.1 billion in total debt.
Image source: Getty Images.
A look at what's ahead
EOG Resources intends on spending between $6.1 billion and $6.5 billion on capital projects this year, which at the midpoint is about $100 million more than it invested last year. That's enough money to grow the company's U.S. oil production by 12% to 16% in 2019. Further, the company can fund that spending level, as well as its dividend, on the cash flows it can produce on $50 oil.
EOG Resources is one of the few oil companies that's planning to spend more money in 2019. However, it's worth noting that the company's investment in development wells will decline by about $100 million this year. Instead of drilling more producing wells, the company intends on increasing its spending on exploration, which will go from 3% to 5% of its budget. That higher level of investment will aid in EOG's search for new sources of low-cost oil to drive future growth. The company is one of the industry leaders in exploration, as it has discovered several high-return drilling regions in recent years and aims to continue that success in 2019.
Meanwhile, with oil in the mid-$50s these days, EOG Resources' spending plan has it on track to produce even more excess cash in 2019, some of which it will use to continue increasing its dividend, with it aiming to expand at a more-than-19% annual rate. The company also anticipates using some of the money it built up last year to pay off a $900 million bond when it matures in June and will consider repurchasing shares if that would create more shareholder value than its other options.
EOG's drilling machine continues to impress
EOG Resources once again delivered a gusher of oil production and cash flow, which shows the strength of its low-cost business model. The company remains well positioned for more of the same in 2019, as it can grow at a healthy rate on $50 oil while producing a growing stream of excess cash at higher prices. Those factors put EOG Resources in an elite group of oil stocks.
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