EOG Resources Inc. (EOG) reported solid adjusted second-quarter 2014 results on the back of an impressive improvement in its crude and liquids production.
Quarterly adjusted earnings of $1.45 per share exceeded the Zacks Consensus Estimate of $1.36 and were 38.1% higher than the year-ago quarter figure of $1.05.
Total revenue increased 9% year over year to $4,187.6 million but lagged the Zacks Consensus Estimate of $4,255.0 million.
Operational Performance
In the quarter, EOG’s total volume rose 17% from the year-earlier level to 53.8 million barrels of oil equivalent (MMBoe), or 591 thousand barrels of oil equivalent per day (MBoe/d).
Crude oil and condensate production in the quarter was 281.3 thousand barrels per day (MBbl/d), up approximately 31.2% from the year-ago level. This growth was primarily driven by significant contribution from the company’s South Texas Eagle Ford, along with North Dakota Bakken.
Natural gas liquids (NGL) volumes increased 22.4% from the year-ago quarter to 79.2 MBbl/d. On the other hand, natural gas volumes rose 1.6% to 1,383 million cubic feet per day (MMcf/d) from the year-earlier level of 1,361 MMcf/d.
Average price realization for crude oil and condensates dropped approximately 0.7% year over year to $102.47 per barrel. Quarterly NGL prices were up 13.5% at $34.41 per barrel from the year-ago level of $30.33. Natural gas was sold at $4.04 per thousand cubic feet (Mcf), marking a year-over-year improvement of about 8.3%.
Liquidity Position
At the end of the second quarter, EOG had cash and cash equivalents of $1,230.1 million and long-term debt of $5,903.1 million, representing a debt-to-capitalization ratio of 26.1%.
During the quarter, the company generated approximately $4,202.2 million of cash flow from operating activities, compared with $3,315.7 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 a severe winter in North America, EOG's extensive portfolio of crude oil and liquids-rich resources offer far higher returns compared to alternative natural gas drilling investments.
For the third quarter of 2014, total production is expected between 570.7 MBoe/d and 598.1 MBoe/d, with 75.9–80.1 MBbls/d of NGL and 1,270.0–1,318.0 MMcf/d of gas. For full-year 2014, EOG expects total volume between 567.4 MBoe/d and 599.7 MBoe/d, with NGL in the 74.3–79.0 MBbl/d range and natural gas in the 1,313–1,351 MMcf/d band.
For the upcoming quarter as well as full year, the company expects crude oil and condensate volumes in the range of 283.1 MBbls/d to 298.3 MBbls/d and 274.2 MBbls/d to 295.5 MBbls/d, respectively.
Outlook
One of the major 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 focus on major oil and liquids rich plays, while holding 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 believe that EOG is poised favorably for the long term, 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. The company’s large portfolio of high-return projects and strong technical competence are its key long-term drivers.
EOG Resources currently carries a short-term Zacks Rank #2 (Buy). Other stocks worth considering in the same sector include Weatherford International plc (WFT), CNOOC Ltd. (CEO) and Natural Gas Services Group Inc. (NGS). All these stocks sport a Zacks Rank #1 (Strong Buy).
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