EOG EOG Resources Inc

EOG Resources Inc. (EOG) reported solid adjusted first-quarter 2014 results on the back of a striking improvement in its crude and liquids production.

Quarterly adjusted earnings of $1.40 per share exceeded the Zacks Consensus Estimate of $1.17 and were 55.6% higher than the year-ago adjusted earnings of 90 cents.
 

Total revenue increased 21.7% year over year to $4,083.7 million and comfortably exceeded the Zacks Consensus Estimate of $4,004.0 million.

Operational Performance

During the quarter, EOG’s total volume expanded 18.5% from the year-earlier level to 50.7 million barrels of oil equivalent (MMBoe), or 563.5 thousand barrels of oil equivalent per day (MBoe/d).

Crude oil and condensate production in the quarter was 266.5 thousand barrels per day (MBbl/d), up approximately 42.3% from the year-ago level. This growth was primarily driven by significant contributions from the company’s South Texas Eagle Ford along with Permian Basin southeastern New Mexico and West Texas plays.

Natural gas liquids (NGL) volumes increased 20.3% from the year-ago quarter to 71.6 MBbl/d. On the other hand, natural gas volumes contracted 1.5% to 1,352 million cubic feet per day (MMcf/d) from the year-earlier level of 1,373 MMcf/d.

Average price realization for crude oil and condensates decreased approximately 5.1% year over year to $100.25 per barrel. Quarterly NGL prices were up 20.2% at $38.20 per barrel from the year-ago level of $31.78. Natural gas was sold at $4.58 per thousand cubic feet (Mcf), showing an improvement of approximately 38.0% year over year.

Liquidity Position

At the end of the first quarter, EOG had cash and cash equivalents of $1,667.2 million and long-term debt of $5,903.0 million, representing a debt-to-capitalization ratio of 27%.

During the quarter, the company generated approximately $2,267.7 million of cash flow from operating activities, compared with $1,424.9 million in the year-ago quarter.

Guidance

EOG set its full-year 2014 crude oil production growth target at 29%. Although natural gas prices recently increased due to severe winter in North America, EOG's extensive portfolio of crude oil and liquids-rich resources offer far superior returns compared to alternative natural gas drilling investments.

For the second quarter of 2014, total production is expected between 552.3 MBoe/d and 587.8 MBoe/d, with 68.5–78.7 MBbls/d of NGL and 1,282.0–1,336.0 MMcf/d of gas. For full-year 2014, EOG expects total volume between 551.2 MBoe/d and 595.4 MBoe/d, with NGL in the 68.6–77.8 MBbl/d range and natural gas in the 1,263–1,331 MMcf/d band.

For the upcoming quarter as well as full year, the company expects crude oil and condensate volumes in the range of 270.2 MBbls/d to 286.4 MBbls/d and 272.1 MBbls/d to 295.7 MBbls/d, respectively.

Outlook

One of the largest U.S. independent oil and gas exploration and production companies, EOG is proactive in its liquids ventures. These efforts will be further aided by its deep focus on major oil and liquids rich plays, while holding its core natural gas and Combo acreage in the Barnett, Leonard and Wolfcamp plays for the long term.

The company expects total capital expenditure between $8.1 billion and $8.3 billion for 2014. This compares favorably with the $7.4 billion capex in 2013. Moreover, EOG Resource is keen on its asset divestiture program.

Though we view EOG as a favorable long-term story, the risk-reward pay-off for the company is still uncertain 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.

The company currently carries a short-term Zacks Rank #2 (Buy). Other stocks worth considering in the same sector include Helmerich & Payne, Inc. (HP), Clayton Williams Energy, Inc. (CWEI) and Matrix Service Company (MTRX). All these stocks hold a Zacks Rank #1 (Strong Buy).

 
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