EOG Resources Inc. (EOG), a major independent oil and gas exploration and production company, has reported stellar adjusted third-quarter 2011 results on the back of an almost 54% growth in crude oil production. Quarterly adjusted earnings of 83 cents per share topped the Zacks Consensus Estimate of 81 cents and showed a substantial improvement from 18 cents earned in the year-earlier quarter.
Total revenue shot up 82.4% year over year to $2,885.7 million, and exceeded the Zacks Consensus Estimate of $2,268.0 million.
Operational Performance
During the quarter, total volume expanded 7.7% from the year-earlier level to 39.3 million barrels of oil equivalent (MMBoe), or 427.3 thousand barrels of oil equivalent per day (MBoe/d).
Crude oil and condensate production was 118.9 thousand barrels per day (MBbl/d), up nearly 54% 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 38% from the year-ago quarter to 44 MBbl/d. On the other hand, natural gas volumes shrunk 7.8% to 1,587 million cubic feet per day (MMcf/d) from the year-earlier level of 1,722 MMcf/d.
Average price realization for crude oil and condensates increased approximately 23.3% year over year to $87.49 per barrel. Quarterly NGL prices jumped more than 39% to $51.02 per barrel from the year-ago level of $36.66. Natural gas was sold at $3.95 per Mcf, showing an improvement of roughly 4% year over year.
Liquidity Position
At the end of the quarter, EOG had cash and cash equivalents of $1,386.7 million and total debt of $5,227.7 million, representing a debt-to-capitalization ratio of 29.5% (versus 30.2% in the preceding quarter), which the company plans to keep at 30% or below for both 2011 and 2012.
During the quarter, the company generated approximately $1,172.2 million in discretionary cash flow, compared with $755.4 million in the year-ago quarter.
Guidance
For 2011, the company appears on track to achieve its targeted 9.5% total company organic production growth, which experienced an 11% growth in the first nine months of 2011. EOG expects its crude oil and condensate production to grow 51%, while total company liquids production is projected to surge 47% on an annualized basis.
For the fourth quarter, total production is expected between 418.5 MBoe/d and 451.4 MBoe/d, with 42–48 MBbls/d of NGL and 1,494–1,592 MMcf/d of gas. For the full year, EOG expects total volume between 410.0 MBoe/d and 433.6 MBoe/d, NGL in the 37.7–44.5 MBbl/d range and natural gas in the 1,581–1,630 MMcf/d range.
For the fourth quarter as well as full-year 2011, the company expects Crude Oil and Condensate volumes to fall in the range of 127.5 MBbls/d to 138.1 MBbls/d and 108.8 MBbls/d to 117.4 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 $6,800 million to $7,000 million for 2011, 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 mainly on the liquid-rich plays. During the first nine months of 2011, the company monetized approximately $1.3 billion worth of assets, which it expects to be approximately $1.6 billion for 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 maintain 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 peer Chesapeake Energy Corporation (CHK).
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