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EOG Resources (EOG) Q1 Earnings Miss on Lower Crude Prices

Zacks Equity Research

EOG Resources, Inc. EOG reported first-quarter 2020 adjusted earnings per share of 55 cents, missing the Zacks Consensus Estimate of 73 cents. The bottom line also decreased from the year-ago quarter’s $1.19.  

Total revenues in the reported quarter increased to $4,717.7 million from the year-ago level of $4,058.6 million. Moreover, the top line beat the Zacks Consensus Estimate of $4,097 million.

The weak quarterly earnings can be attributed to a drop in commodity price realizations and higher operating costs, partially offset by growth in production volumes on the back of increased U.S. output.

EOG Resources Inc Price, Consensus and EPS Surprise

EOG Resources Inc Price, Consensus and EPS Surprise

EOG Resources Inc price-consensus-eps-surprise-chart | EOG Resources Inc Quote

Operational Performance

In the quarter under review, EOG Resources’ total volume rose 14% year over year to 79.5 million barrels of oil equivalent (MMBoe) on the back of higher U.S. output.

Crude oil and condensate production in the quarter totaled 483.3 thousand barrels per day (MBbl/d), up 11% from the year-ago level. Natural gas liquids (NGL) volume increased 35% year over year to 161.3 MBbl/d. Natural gas volume rose to 1,378 million cubic feet per day (MMcf/d) from the year-earlier quarter’s 1,308 MMcf/d.

Average price realization for crude oil and condensates fell 16% year over year to $46.96 per barrel. Quarterly NGL prices declined 46% to $10.94 per barrel from $20.28 a year ago. Moreover, natural gas was sold at $1.67 per Mcf, representing a year-over-year decline of 41%.

Operating Costs

Lease and Well expenses declined to $329.7 million from $336.3 million a year ago. However, transportation costs increased to $208.3 million from $176.5 million a year ago. Moreover, the company reported Gathering and Processing costs of $128.5 million, higher than the year-ago quarter’s $111.3 million. Exploration expenses rose to $39.7 million from the year-ago level of $36.3 million.

Total operating expenses increased to $4,660.1 million from $3,182.1 million in first-quarter 2019.

Liquidity Position& Capital Expenditure

At first quarter-end, the company had cash and cash equivalents of $2,906.9 million, up from fourth quarter-end level of $2,028 million. Long-term debt rose to $4,703.2 million from $4,160.9 million in the fourth quarter. This represents a net debt to capitalization of 20%. Moreover, it has $2 billion available under the unsecured revolver facility.

In the quarter, the company generated $1.7 billion in discretionary cash flow. It incurred $1.8 billion of capital expenditures in the first quarter, 14% below the target midpoint.

Guidance

For exploration and development operations, EOG Resources decided to invest in the range of $3.3-$3.7 billion in 2020. The company decreased the 2020 capital plan by 46% from its original guidance. It is on track to achieve 2020 cost savings of 8% from 2019 levels. Given the current market volatility, the company has delayed the startup of new wells and reduced activities to navigate through the weak commodity pricing scenario. As such, it has decreased operated rig count from 36 rigs to eight rigs in the past six weeks. For the remainder of the year, the company expects to operate six rigs on an average and work on high-return wells.

EOG Resources expects this capital budget to enable it to produce oil of 390 MBbl/d in 2020, indicating a 15% decrease from 2019 levels. The company also revealed plans of bringing roughly 485 net wells on production in 2020, down from 750 net wells in 2019. It will focus on Delaware Basin and South Texas Eagle Ford assets. The company has identified more than 4,500 net drilling locations, which can generate strong returns at less than $30 per barrel WTI Crude price. These locations are expected to have more than nine years of inventory.

As of May 5, it hedged 301 MBbl/d of oil at $48.30 per barrel for the second quarter and 186 MBbl/d of oil at $46.78 for the third quarter.

Zacks Rank & Stocks to Consider

Currently, EOG Resources has a Zacks Rank #5 (Strong Sell). Some better-ranked players in the energy space include RGC Resources Inc. RGCO, Cabot Oil & Gas Corporation COG, and Comstock Resources, Inc. CRK, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

RGC Resources’ 2020 earnings per share are expected to rise 14.8% year over year.

Cabot Oil & Gas beat earnings estimates thrice and met once in the last four quarters, with average positive surprise of 6.1%.

Comstock Resources’ 2020 sales are expected to gain 30.8% year over year.

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