EOG Excels as Crude Expands - Analyst Blog

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EOG Resources Inc. ( EOG ), a major independent oil and gas exploration and production company, has reported stellar adjusted fourth-quarter 2011 results on the back of an almost 54% growth in crude oil production. Quarterly adjusted earnings of $1.15 per share topped the Zacks Consensus Estimate of 89 cents and showed a substantial improvement from 36 cents earned in the year-earlier quarter.

Full-year 2011 adjusted earnings of $3.79 per share also surpassed our expectation of $3.73 and the year-earlier profit of $1.16.

Total revenue in the quarter shot up nearly 55% year over year to $2,773.0 million, and exceeded the Zacks Consensus Estimate of $2,458.0 million. Full-year 2011 total revenue increased 66% year over year to $10,126.1 million.

Operational Performance

During the quarter, total volume expanded 4.9% from the year-earlier level to 40.6 million barrels of oil equivalent (MMBoe), or 441.5 thousand barrels of oil equivalent per day (MBoe/d).

Crude oil and condensate production was 135.3 thousand barrels per day (MBbl/d), up 54.1% from the year-ago level. This was primarily driven by significant contributions from the South Texas Eagle Ford play followed by the Fort Worth Barnett Shale Combo.

Natural gas liquids ( NGL ) volumes increased almost 39% from the year-ago quarter to 50.7 MBbl/d. On the other hand, natural gas volumes shrunk 13.8% to 1,533 million cubic feet per day (MMcf/d) from the year-earlier level of 1,778 MMcf/d.

Average price realization for crude oil and condensates increased approximately 20.4% year over year to $95.75 per barrel. Quarterly NGL prices jumped more than 17% to $51.53 per barrel from the year-ago level of $43.97. Natural gas was sold at $3.40 per Mcf, showing a deterioration of roughly 5.3% year over year.

Liquidity Position

At the end of 2011, EOG had cash and cash equivalents of $615.7 million and total debt of $5,009.2 million, representing a debt-to-capitalization ratio of 28.4%, which it plans to keep below 30% in 2012.

During the quarter, the company generated approximately $1,297.6 million in discretionary cash flow, compared with $826.6 million in the year-ago quarter.

Guidance

For 2012, the company appears on track to achieve its targeted 5.5% production growth, which experienced a 9.4% increase in 2011. EOG now expects its total organic liquids production growth at 30% versus its prior expectation of 27% for the year. Total liquids growth will likely comprise a 30% increase in crude oil and condensate production and a 30% increase in NGLs production.

For 2012, natural gas production is expected to decline 11% from 2011, reflecting additional producing property sales and a further de-emphasis on natural gas drilling in a weak price environment in North America.

For the first quarter, total production is expected between 411.2 MBoe/d and 448.6 MBoe/d, with 46.6-54 MBbls/d of NGL and 1,429-1,508 MMcf/d of gas. For the full year, EOG expects total volume between 423.0 MBoe/d and 469.4 MBoe/d, NGL in the 49.8-60.2 MBbl/d range and natural gas in the 1,420-1,510 MMcf/d range.

For the first quarter as well as full-year 2012, the company expects Crude Oil and Condensate volumes to fall in the range of 126.5 MBbls/d to 143.3 MBbls/d and 136.6 MBbls/d to 157.5 MBbls/d, respectively.

Outlook

EOG's increasing interest in oil is appreciable in a favorable price environment, which 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 $7,600 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 company Chesapeake Energy Corporation ( CHK ). During 2011, the company monetized approximately $1,430 million worth of assets, which it expects to be approximately $1,200 million for 2012.

Although we view EOG as a favorable long-term story, risk-reward pay-off for the company is still uncertain over the near term due to its natural gas weighted production and reserves base as well as cost overruns. EOG's large portfolio of high-return projects and strong technical competence are the key long-term drivers. Hence, we maintain our long-term Neutral recommendation for the EOG stock. The company currently retains a Zacks #2 Rank (short-term Buy rating).


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CHK , EOG , NGL

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