EOG Resources Inc. (EOG), a major independent oil and gas exploration and production company, reported weaker-than-expected fourth quarter results. Quarterly earnings were 92 cents per share, compared with the Zacks Consensus Estimate of 98 cents and a year-ago profit of 74 cents. Despite a significant increase in liquid prices, earnings missed due to higher operating expenses, almost flat production volumes and still struggling natural gas prices.
While EOG’s results came in below our expectations, the company raised cash dividend by nearly 7% from the previous annualized rate. The new quarterly dividend will be 15.5 cents per share (62 cents annualized), representing the 11th increase.
Estimate revisions trend
There was a mixed trend in estimate revisions. For the last 30 days, 7 of the 21 analysts covering the stock raised estimates for full fiscal 2010 while 6 analysts moved in the opposite direction. However, no up and downside movements were noticed in the last 7 days. Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $3.89 per share, which would be a significant improvement over the full fiscal 2009 earnings of $3.00 per share.
The company’s earnings surprise for the preceding four quarters varies between a negative 31.5% and a positive 69.8%, with the average being a positive 11.8%.
Year-end 2009 reserves
As of year-end 2009, EOG had 10.8 trillion cubic feet equivalent (Tcfe) of proved reserves. The company’s year-end proved reserves tally was up 24% from the year-earlier level. In 2009, the company replaced 364% of its produced volumes at an all-in cost of $1.18 (vs. $2.60 in 2008) per thousand cubic feet equivalent (Mcfe).
Operational performance
Total volumes during the quarter slightly increased from the year-earlier level to 194.9 billion cubic feet equivalent (Bcfe), or 2,119 million cubic feet equivalent per day (MMcfe/d), 76% of which was natural gas and 24% liquids. Natural gas volumes decreased more than 3% year-over-year.
Crude oil and condensate production during the quarter was 60.9 thousand barrels per day (MBbl/d), up more than 9% from the year-ago level. This was primarily driven by a modest growth in domestic volumes. Natural gas liquids (NGL) volumes increased almost 45% from the year-ago quarter to 24.4 MBbl/d.
Average realized natural gas prices decreased roughly 27% year-over-year to $3.88 per Mcf. Prices decreased across all the geographical segments, with domestic realizations down nearly 25% year-over-year to $4.21 per Mcf. Average realized prices for crude oil and condensates increased approximately 46% year-over-year to $67.50 per barrel. Quarterly NGL prices were $40.25 per barrel, an increase of approximately 51% year-over-year.
Liquidity position
At the end of the quarter, EOG had cash and cash equivalents of $685.8 million and long-term debt of $2.8 billion, representing a debt-to-capitalization ratio of approximately 21.9%. During the quarter, EOG generated approximately $868.3 million ($3.43 per share) in discretionary cash flow (DCF), compared to a DCF of $911 million ($3.64 per share) in the year-ago quarter.
Outlook
EOG has set a full-year target of organic production growth of 13% with a 47% increase in liquid production volumes. The company expects that this year’s increased liquid production will come from an active drilling program in the North Dakota Bakken play, Fort Worth Barnett Combo and the Waskada Field in Manitoba.
We see EOG as a core holding in the large-cap E&P space with an industry leading organic production-growth profile, strong inventory of drilling opportunities, attractive cost and return metrics and impressive long-term growth prospects.
Read the full analyst report on “EOG”
Zacks Investment Research
