EOG EOG Resources Inc

HOUSTON, Aug. 4, 2016 /PRNewswire/ --

• Increases Net Premium Inventory to 4,300 Locations and Total Net Premium Resource Potential to 3.5 BnBoe
  • Premium Inventory Well-Level Rates of Return Exceed 30 Percent at $40 Crude Oil Price
• Beats All U.S. Production and Operating Cost Targets
• Raises 2016 U.S. Crude Oil Production Guidance
• Announces $425 Million in Proceeds from Asset Sales
• Provides Crude Oil Production Growth Outlook through 2020

EOG Resources, Inc. (EOG) today reported a second quarter 2016 net loss of $292.6 million, or $0.53 per share. This compares to second quarter 2015 net income of $5.3 million, or $0.01 per share. 

Adjusted non-GAAP net loss for the second quarter 2016 was $209.7 million, or $0.38 per share, compared to adjusted non-GAAP net income of $153.1 million, or $0.28 per share, for the same prior year period.  Adjusted non-GAAP net income (loss) is calculated by matching hedge realizations to settlement months and making certain other adjustments in order to exclude non-recurring items.  For a reconciliation of non-GAAP measures to GAAP measures, please refer to the attached tables.

Lower commodity prices more than offset significant well productivity improvements and cost reductions, resulting in decreases in adjusted non-GAAP net income, discretionary cash flow and EBITDAX during the second quarter 2016 compared to the second quarter 2015.  For a reconciliation of non-GAAP measures to GAAP measures, please refer to the attached tables.           

Operational Highlights
In the second quarter 2016, EOG increased its inventory of net premium drilling locations from 3,200 to 4,300.  Premium inventory is defined by a direct after-tax rate of return hurdle rate of at least 30 percent assuming $40 flat crude oil prices.  Total premium net resource potential increased from 2.0 billion barrels of oil equivalent (BnBoe) to 3.5 BnBoe.  These additions were the result of advances in completion technology, precision targeting, longer laterals and cost reductions. 

U.S. crude oil volumes of 265,400 barrels of oil per day (Bopd) in the second quarter 2016 exceeded the midpoint of the company's guidance by 2 percent. Compared to the same prior year period, lease and well expenses decreased 23 percent, and transportation costs decreased 13 percent, both on a per-unit basis.  Total general and administrative expenses decreased 5 percent compared to the second quarter 2015, excluding expenses related to a voluntary retirement program. 

Exploration and development expenditures (excluding property acquisitions) decreased 49 percent, while total crude oil production declined by only 4 percent, in the second quarter 2016 compared to the same period last year.  Total natural gas production for the second quarter 2016 decreased 5 percent versus the same prior year period. 

"The benefits of EOG's premium drilling strategy are beginning to show in our operating performance," said William R. "Bill" Thomas, Chairman and Chief Executive Officer.  "We are committed to focusing capital on our premium assets which we are confident will increasingly lead to break-out performance as prices improve.  This quarter's addition of 1.5 BnBoe of additional premium net resource potential further solidifies our ability to deliver premium returns over the long term."

2016 Capital Plan Update and 2020 Crude Oil Production Outlook
As a result of cost reductions and efficiency improvements, EOG has increased its targeted number of well completions for 2016 from 270 to 350 net wells.  Many of the additional well completions are scheduled for late 2016.  In addition, due to increased drilling productivity, the company expects to drill 250 net wells, 50 more than in its original 2016 plans.  This increase in activity will be accomplished while maintaining 2016 capital expenditure guidance of $2.4 to $2.6 billion, excluding acquisitions. 

EOG can achieve significant production growth with balanced cash flow from 2017 through 2020, even in a moderate commodity price environment.  Based on EOG's long-term plan and assuming a flat $50 West Texas Intermediate crude oil price (WTI), EOG would expect 10 percent compound annual crude oil production growth through 2020.  Assuming flat $60 WTI, EOG would expect 20 percent compound annual crude oil production growth through 2020.

"EOG's long-term outlook reflects superior capital efficiency and continued capital discipline, hallmarks of the company since its founding," Thomas said.  "Our premium drilling strategy is the key to our future success, and it is underpinned by EOG's industry-leading asset quality, scale, technology, well performance and low-cost structure.  Most importantly, EOG's high-performance culture prioritizes rates of return over other performance metrics."

South Texas Eagle Ford
The South Texas Eagle Ford, EOG's largest high-return play, continues to lead the company in activity and production.  In the second quarter, EOG increased its Eagle Ford premium inventory by 390 net drilling locations to almost 2,000 total.  This large inventory of high-quality locations could be expanded significantly should additional cost reductions or improvements in well productivity be achieved.  For example, EOG estimates that a 10 percent reduction in completed well costs or a 10 percent improvement in estimated recoverable reserves per well would more than double EOG's premium inventory in the Eagle Ford. 

In the second quarter, EOG completed 60 wells in the Eagle Ford with an average treated lateral length of 4,800 feet per well and an average 30-day initial production rate per well of 1,705 barrels of oil equivalent per day (Boed), or 1,340 Bopd, 175 barrels per day (Bpd) of natural gas liquids (NGLs) and 1.1 million cubic feet per day (MMcfd) of natural gas.

Delaware Basin
In the second quarter, EOG expanded its premium inventory in all three of its major Delaware Basin formations – the Wolfcamp, the Second Bone Spring and the Leonard.  By organically adding more than 500 net premium drilling locations, EOG is well positioned for years of high-return growth in this world-class basin.  EOG continues to improve well economics in the Delaware Basin through advances in well and completion designs, including recent breakthroughs that enable higher productivity with longer laterals.  

In the Delaware Basin Wolfcamp, EOG completed 16 wells in the second quarter with an average treated lateral length of 6,500 feet per well, a 44 percent increase in lateral length from the prior quarter.  The average 30-day initial production rate per well was 2,410 Boed, or 1,610 Bopd, 340 Bpd of NGLs and 2.8 MMcfd of natural gas.  In the Delaware Basin Second Bone Spring, EOG completed nine wells in the second quarter with an average treated lateral length of 4,500 feet per well and an average 30-day initial production rate per well of 1,500 Boed, or 1,120 Bopd, 155 Bpd of NGLs and 1.4 MMcfd of natural gas. 

Rockies and the Bakken
EOG is continuing to optimize its core Rockies and Bakken plays, adding 200 additional net premium drilling locations to its inventory in the DJ Basin Codell in Wyoming.  The Codell is a liquids-rich sandstone formation that now has significant premium potential due to cost reductions and efficiencies along with the application of EOG's precision targeting and completion technology.

In the DJ Basin Codell in Wyoming, EOG completed the Jubilee 541-3502H well in the second quarter with average 30-day initial production rates of 1,190 Bopd, 130 Bpd of NGLs and 0.5 MMcfd of natural gas.  

In the Powder River Basin Turner, EOG completed the Arbalest 73-06H, 272-06H and 66-0607H wells on the same pad during the second quarter with average 30-day initial production rates per well of 1,000 Bopd, 330 Bpd of NGLs and 3.8 MMcfd of natural gas. 

In the North Dakota Bakken, EOG completed the Austin 421-2821H, 422-2821H and 423-2821H wells in a three-well pattern in the second quarter with average 30-day initial production rates per well of 1,100 Bopd, 90 Bpd of NGLs and 0.5 MMcfd of natural gas.  Also in the North Dakota Bakken, EOG completed the West Clark 103-0136H and 104-0136H wells in a two-well pattern with average 30-day initial production rates per well of 1,210 Bopd, 390 Bpd of NGLs and 1.8 MMcfd of natural gas. 

In the Three Forks, EOG completed the West Clark 117-0136H well in the second quarter with average 30-day initial production rates of 1,290 Bopd, 380 Bpd of NGLs and 1.8 MMcfd of natural gas. 

Hedging Activity
For the period March 1 through August 31, 2016, EOG had natural gas financial price swap contracts in place for 60,000 million British thermal units (MMBtu) per day at a weighted average price of $2.49 per MMBtu.  

For the period September 1 through November 30, 2016, EOG sold natural gas call option contracts for 43,750 MMBtu per day at an average strike price of $3.45 per MMBtu.  For the period March 1 through November 30, 2017, EOG sold natural gas call option contracts for 43,750 MMBtu per day at an average strike price of $3.45 per MMBtu.  For the period March 1 through November 30, 2018, EOG sold natural gas call option contracts for 12,500 MMBtu per day at an average strike price of $3.32 per MMBtu.

For the period March 1 through November 30, 2017, EOG purchased natural gas put option contracts for 35,000 MMBtu per day at an average strike price of $2.90 per MMBtu.  For the period March 1 through November 30, 2018, EOG purchased natural gas put option contracts for 10,000 MMBtu per day at an average strike price of $2.90 per MMBtu.   

A comprehensive summary of natural gas derivative contracts is provided in the attached tables.  

Capital Structure and Asset Sales
At June 30, 2016, EOG's total debt outstanding was $7.0 billion with a debt-to-total capitalization ratio of 37 percent. Taking into account cash on the balance sheet of $780 million at the end of the second quarter, EOG's net debt was $6.2 billion with a net debt-to-total capitalization ratio of 34 percent.  For a reconciliation of non-GAAP measures to GAAP measures, please refer to the attached tables.

Proceeds from asset sales this year to date total $425 million.  This includes proceeds from two transactions that closed in the third quarter 2016.  The assets were divested in more than a dozen separate transactions of non-core natural gas and liquids-rich properties.  Associated production of the divested assets was 45 MMcfd of natural gas, 3,300 Bopd and 3,700 Bpd of NGLs.  Sales of additional non-core assets are in progress and anticipated to close in 2016.

Conference Call August 5, 2016
EOG's second quarter 2016 results conference call will be available via live audio webcast at 9 a.m. Central time (10 a.m. Eastern time) on Friday, August 5, 2016.  To listen, log on to the Investors Overview page on the EOG website at http://investors.eogresources.com/overview.  The webcast will be archived on EOG's website through August 19, 2016.

EOG Resources, Inc. is one of the largest independent (non-integrated) crude oil and natural gas companies in the United States with proved reserves in the United States, Trinidad, the United Kingdom and China.  EOG Resources, Inc. is listed on the New York Stock Exchange and is traded under the ticker symbol "EOG."  For additional information about EOG, please visit www.eogresources.com.

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements, other than statements of historical facts, including, among others, statements and projections regarding EOG's future financial position, operations, performance, business strategy, returns, budgets, reserves, levels of production and costs, statements regarding future commodity prices and statements regarding the plans and objectives of EOG's management for future operations, are forward-looking statements.  EOG typically uses words such as "expect," "anticipate," "estimate," "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should" and "believe" or the negative of those terms or other variations or comparable terminology to identify its forward-looking statements.  In particular, statements, express or implied, concerning EOG's future operating results and returns or EOG's ability to replace or increase reserves, increase production, reduce or otherwise control operating and capital costs, generate income or cash flows or pay dividends are forward-looking statements.  Forward-looking statements are not guarantees of performance.  Although EOG believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct.  Moreover, EOG's forward-looking statements may be affected by known, unknown or currently unforeseen risks, events or circumstances that may be outside EOG's control.  Important factors that could cause EOG's actual results to differ materially from the expectations reflected in EOG's forward-looking statements include, among others:

• the timing, extent and duration of changes in prices for, supplies of, and demand for, crude oil and condensate, natural gas liquids, natural gas and related commodities;
• the extent to which EOG is successful in its efforts to acquire or discover additional reserves;
• the extent to which EOG is successful in its efforts to economically develop its acreage in, produce reserves and achieve anticipated production levels from, and maximize reserve recovery from, its existing and future crude oil and natural gas exploration and development projects;
• the extent to which EOG is successful in its efforts to market its crude oil and condensate, natural gas liquids, natural gas and related commodity production;
• the availability, proximity and capacity of, and costs associated with, appropriate gathering, processing, compression, transportation and refining facilities;
• the availability, cost, terms and timing of issuance or execution of, and competition for, mineral licenses and leases and governmental and other permits and rights-of-way, and EOG's ability to retain mineral licenses and leases;
• the impact of, and changes in, government policies, laws and regulations, including tax laws and regulations; environmental, health and safety laws and regulations relating to air emissions, disposal of produced water, drilling fluids and other wastes, hydraulic fracturing and access to and use of water; laws and regulations imposing conditions or restrictions on drilling and completion operations and on the transportation of crude oil and natural gas; laws and regulations with respect to derivatives and hedging activities; and laws and regulations with respect to the import and export of crude oil, natural gas and related commodities;
• EOG's ability to effectively integrate acquired crude oil and natural gas properties into its operations, fully identify existing and potential problems with respect to such properties and accurately estimate reserves, production and costs with respect to such properties;
• the extent to which EOG's third-party-operated crude oil and natural gas properties are operated successfully and economically;
• competition in the oil and gas exploration and production industry for the acquisition of licenses, leases and properties, employees and other personnel, facilities, equipment, materials and services;
• the availability and cost of employees and other personnel, facilities, equipment, materials (such as water) and services;
• the accuracy of reserve estimates, which by their nature involve the exercise of professional judgment and may therefore be imprecise;
• weather, including its impact on crude oil and natural gas demand, and weather-related delays in drilling and in the installation and operation (by EOG or third parties) of production, gathering, processing, refining, compression and transportation facilities;
• the ability of EOG's customers and other contractual counterparties to satisfy their obligations to EOG and, related thereto, to access the credit and capital markets to obtain financing needed to satisfy their obligations to EOG;
• EOG's ability to access the commercial paper market and other credit and capital markets to obtain financing on terms it deems acceptable, if at all, and to otherwise satisfy its capital expenditure requirements;
• the extent and effect of any hedging activities engaged in by EOG;
• the timing and extent of changes in foreign currency exchange rates, interest rates, inflation rates, global and domestic financial market conditions and global and domestic general economic conditions;
• political conditions and developments around the world (such as political instability and armed conflict), including in the areas in which EOG operates;
• the use of competing energy sources and the development of alternative energy sources;
• the extent to which EOG incurs uninsured losses and liabilities or losses and liabilities in excess of its insurance coverage;
• acts of war and terrorism and responses to these acts;
• physical, electronic and cyber security breaches; and
• the other factors described under ITEM 1A, Risk Factors, on pages 13 through 21 of EOG's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and any updates to those factors set forth in EOG's subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.

In light of these risks, uncertainties and assumptions, the events anticipated by EOG's forward-looking statements may not occur, and, if any of such events do, we may not have anticipated the timing of their occurrence or the duration and extent of their impact on our actual results.  Accordingly, you should not place any undue reliance on any of EOG's forward-looking statements. EOG's forward-looking statements speak only as of the date made, and EOG undertakes no obligation, other than as required by applicable law, to update or revise its forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.

The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose not only "proved" reserves (i.e., quantities of oil and gas that are estimated to be recoverable with a high degree of confidence), but also "probable" reserves (i.e., quantities of oil and gas that are as likely as not to be recovered) as well as "possible" reserves (i.e., additional quantities of oil and gas that might be recovered, but with a lower probability than probable reserves).  Statements of reserves are only estimates and may not correspond to the ultimate quantities of oil and gas recovered. Any reserve estimates provided in this press release that are not specifically designated as being estimates of proved reserves may include "potential" reserves and/or other estimated reserves not necessarily calculated in accordance with, or contemplated by, the SEC's latest reserve reporting guidelines.  Investors are urged to consider closely the disclosure in EOG's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, available from EOG at P.O. Box 4362, Houston, Texas 77210-4362 (Attn: Investor Relations). You can also obtain this report from the SEC by calling 1-800-SEC-0330 or from the SEC's website at www.sec.gov.  In addition, reconciliation and calculation schedules for non-GAAP financial measures can be found on the EOG website at www.eogresources.com.