A month has gone by since the last earnings report for EOG Resources (EOG). Shares have added about 22.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is EOG Resources due for a pullback? 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 drivers.
EOG Resources Miss Q1 Earnings on Lower Crude Prices
EOG Resources 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.
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%.
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.
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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted -120.97% due to these changes.
At this time, EOG Resources has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, EOG Resources has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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