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EOG Resources (EOG) Down 15.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
·5 mins read

It has been about a month since the last earnings report for EOG Resources (EOG). Shares have lost about 15.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is EOG Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

EOG Resources Misses Q2 Earnings on Lower Crude Prices

EOG Resources reported second-quarter 2020 adjusted loss per share of 23 cents, wider than the Zacks Consensus Estimate of a loss of 14 cents. The company reported earnings of $1.31 per share in the year-ago quarter.  

Total revenues for the reported quarter decreased to $1,103.4 million from the year-ago level of $4,697.6 million. Moreover, the top line missed the Zacks Consensus Estimate of $2,321 million.

The weak quarterly results were due to a massive drop in commodity price realizations and lower production volumes, partially offset by decreased operating costs. Production declined in response to a weak oil price environment.

Trinidad Discovery

The company discovered net 500 billion cubic feet of natural gas in Trinidad. The resources are located in shallow waters off the southeast coast of the country. The discovery will likely allow it to add two new production platforms.

Operational Performance

For the quarter under review, EOG Resources’ total volume declined 23% year over year to 56.7 million barrels of oil equivalent (MMBoe) on the back of lower U.S. and international output. The company curtailed second-quarter production due to weak crude price environment that stemmed from coronavirus-induced lockdowns.

Crude oil and condensate production for the quarter totaled 331.1 thousand barrels per day (MBbl/d), down 27% from the year-ago level. Natural gas liquids (NGL) volume declined 23% year over year to 101.2 MBbl/d. Natural gas volume decreased to 1,147 million cubic feet per day (MMcf/d) from the year-earlier quarter’s 1,356 MMcf/d.

Average price realization for crude oil and condensates fell 67% year over year to $20.40 per barrel. Quarterly NGL prices declined 35% to $10.20 per barrel from $15.63 a year ago. Moreover, natural gas was sold at $1.36 per Mcf, representing a year-over-year decline of 38%.

Operating Costs

Lease and Well expenses declined to $245.3 million from $347.3 million a year ago. Moreover, transportation costs decreased to $151.7 million from $174.1 million a year ago. Also, the company reported Gathering and Processing costs of $96.8 million, lower than the year-ago quarter’s $112.6 million. Exploration expenses fell to $27.3 million from the year-ago level of $32.5 million.

Total operating expenses decreased to $2,189.9 million from $3,566.9 million in second-quarter 2019.

Liquidity Position & Capital Expenditure

At second quarter-end, EOG Resources had cash and cash equivalents of $2,416.5 million, down from the first quarter-end level of $2,906.9 million. Long-term debt rose to $5,703.1 million from $4,703.2 million in the first quarter. This represents a net debt to capitalization of 21.9%. Moreover, it has $2 billion available under the unsecured revolver facility.

In the quarter, the company generated $672 million in discretionary cash flow and $194 million free cash flow. It incurred $534.4 million of capital expenditure in the second quarter.

Guidance

The company increased its well cost savings target for this year to 12% from 8% announced earlier. Due to the low price environment, the company curtailed significant production volumes in the second quarter. Although it resumed production in many places, the company expects around 25,000 barrels of oil per day output to remain shut-in in the third quarter. It expects 2020 production in the range of 730.1-765.9 MBoe/d. Third-quarter output will likely be in the band of 676.1-711.7 MBoe/d.

The company expects full-year 2020 capital expenditure in the range of $3.4-$3.6 billion. Third-quarter capital expenditure will likely be within $600-$700 million. Full-year 2020 lease and well costs are expected within $4.10-$4.50 per Boe. Transportation costs are estimated in the $2.50-$2.90 per Boe range. It expects gathering and processing expenses to be $1.65-$1.85 per Boe.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -132.5% due to these changes.

VGM Scores

At this time, EOG Resources has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, EOG Resources has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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