EOG Resources Inc.
(
EOG
) reported solid adjusted second-quarter 2012 results on the back
of a striking improvement in productivity at the Eagle Ford and
Bakken plays. However, the positives were partly marred by lower
commodity prices.
Quarterly adjusted earnings of $1.16 per share exceeded the
Zacks Consensus Estimate of 92 cents and were above $1.11 earned in
the year-earlier quarter.
Total revenue increased 13.2% year over year to $2,909.3 million
and exceeded the Zacks Consensus Estimate of $2,487.0 million.
Management pointed out that approximately 86% of its North American
wellhead revenue came from liquids in the second quarter.
Operational Performance
During the quarter, EOG's total volume expanded 16.5% from the
year-earlier level to 43.7 million barrels of oil equivalent
(MMBoe), or 480.5 thousand barrels of oil equivalent per day
(MBoe/d).
Crude oil and condensate production was 158.7 thousand barrels per
day (MBbl/d), up almost 52% from the year-ago level. This was
primarily driven by significant contributions from the company's
Eagle Ford and Bakken plays.
Natural gas liquids (NGL) volumes increased 41.9% from the year-ago
quarter to 55.5 MBbl/d. On the other hand, natural gas volumes
shrunk 1.1% to 1,598 million cubic feet per day (MMcf/d) from the
year-earlier level of 1,615 MMcf/d.
Average price realization for crude oil and condensates decreased
approximately 4.6% year over year to $95.20 per barrel. Quarterly
NGL prices were down almost 35.0% at $33.72 per barrel from the
year-ago level of $51.65. Natural gas was sold at $2.47 per
thousand cubic feet (Mcf), showing a deterioration of roughly 40%
year over year.
Liquidity Position
At the end of the second quarter, EOG had cash and cash equivalents
of $280.4 million and long-term debt of $5,011.9 million,
representing a debt-to-capitalization ratio of 27.3%, which it
plans to keep below 30% in 2012.
During the quarter, the company generated approximately $1,381.7
million in discretionary cash flow, compared with $1,152.1 million
in the year-ago quarter.
Guidance
Stellar drilling results during the first half of the year
encouraged EOG to increase its full-year crude oil production
growth target to 37% from 33% and total company production growth
target to 9% from the earlier expectation of 7%.
The company further de-emphasized on natural gas drilling in a weak
price environment in North America.
For the third quarter, total production is expected between 443.2
MBoe/d and 476.6 MBoe/d, with 52.6-59.0 MBbls/d of NGL and
1,421-1,497 MMcf/d of gas. For the full year, EOG expects total
volume between 447.7 MBoe/d and 474.3 MBoe/d, NGL in the 51.7-59.2
MBbl/d range and natural gas in the 1,478-1,524 MMcf/d range.
For the upcoming quarter as well as full-year 2012, the company
expects crude oil and condensate volumes in the range of 153.6
MBbls/d to 168.2 MBbls/d and 149.6 MBbls/d to 161.1 MBbls/d,
respectively.
Outlook
The fourth-largest U.S. independent oil and gas exploration and
production company − EOG − remains proactive with its liquid
ventures. It will be further augmented by its deep focus on major
oil and liquids rich plays, such as South Texas Eagle Ford play,
Fort Worth Barnett Shale Combo, as well as Colorado Niobrara,
Oklahoma Marmaton, West Texas Wolfcamp and New Mexico Leonard.
The company expects its exploration and production expenditures to
range from $7,400 million to $7,575 million for 2012, including
exploration, development and production facilities as well as
midstream expenditures.
Moreover, the company remains busy with its asset divestiture
program in order to focus on the liquid-rich plays, like its peer
Chesapeake Energy Corporation
(
CHK
). Through June 30, the company monetized approximately $1,112
million worth of assets, which it expects to be approximately
$1,200 million to $1,250 million for 2012.
Although we view EOG as a favorable long-term story, risk-reward
pay-off for the company is still uncertain for the near term due to
its natural gas weighted production and reserves base as well as
cost overruns.
Hence, we maintain our long-term Neutral recommendation for the EOG
stock that is supported by a Zacks #3 Rank (short-term Hold
rating).
CHESAPEAKE ENGY (CHK): Free Stock Analysis
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EOG RES INC (EOG): Free Stock Analysis Report
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