EOG Resources Inc. (EOG), a major independent oil and gas exploration and production company, reported better-than-expected adjusted first-quarter 2011 results on the back of 14% production growth as well as higher commodity prices. Quarterly earnings of 68 cents per share topped the Zacks Consensus Estimate of 54 cents and showed an improvement from 46 cents earned in the year-earlier quarter.
Total revenue increased over 38% year over year to $1,897.1 million, and exceeded the Zacks Consensus Estimate of $1,633 million.
Operational Performance
During the quarter, total volume grew 14% from the year-earlier level to 36.8 million barrels of oil equivalent (MMBoe), or 409.1 thousand barrels of oil equivalent per day (MBoe/d).
Crude oil and condensate production was 94.4 thousand barrels per day (MBbl/d), up approximately 48% from the year-ago level. This was primarily driven by significant growth in North American volumes, specially the North Dakota Bakken/Three Forks and the South Texas Eagle Ford plays. Natural gas liquids (NGL) volumes increased nearly 44% from the year-ago quarter to 35.4 MBbl/d. On the other hand, natural gas volumes grew 3.4% year over year to 1,676 million cubic feet per day (MMcf/d).
Average price realization for crude oil and condensates increased approximately 20% year over year $87.61 per barrel. Quarterly NGL prices increased marginally to $46.65 per barrel from the year-ago level of 46.61. However, average realized natural gas prices decreased roughly 17% year over year to $3.87 per Mcf.
Liquidity Position
At the end of the quarter, EOG had cash and cash equivalents of $1,668.3 million and total debt of $5,224.7 million, representing a debt-to-capitalization ratio of 30.7% (versus 33.8% in the preceding quarter), which the company plans to keep below 30% for both 2011 and 2012.
During the quarter, the company generated approximately $946.6 million in discretionary cash flow (DCF), compared with $764.9 million in the year-ago quarter.
Guidance
Even though EOG said that weather-related operational hindrances, in the North Dakota Bakken and Manitoba Waskada areas, are expected to hit its second quarter production, it maintained its full-year crude oil and condensate production growth forecast at 55%.
For the second quarter, total production is expected between 384.8 MBoe/d and 414.0 MBoe/d, with 35.4–39.8 MBbls/d of NGL and 1,519–1,611 MMcf/d of gas. For the full year, EOG expects its total volume to be between 397.6 MBoe/d and 448.5 MBoe/d, NGL in the 35.5–45.7 MBbl/d range and natural gas in the 1,550–1,650 MMcf/d range.
For the second quarter as well as full-year 2011, the company expects its Crude Oil and Condensate volumes to fall in the range of 96.2 MBbls/d to 105.8 MBbls/d and 103.7 MBbls/d to 127.8 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 Eagleford, Bakken and Barnet Combo, as well as Niobrara and the newly liquid-rich play, Wolfcamp. The company expects its exploration and production expenditures to range from $6.4 billion to $6.6 billion for 2011, including exploration, development and production facilities as well as midstream expenditures.
The company plans to sell more natural gas and midstream assets (worth $1 billion) in 2011.
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 retain our long-term Neutral recommendation for the EOG stock. The company currently retains a Zacks #3 Rank (short-term Hold rating), in line with its peers Anadarko Petroleum Corp. (APC) and Apache Corp. (APA).
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