EOG Resources Inc (NYSE:EOG) has just announced its results for the fourth quarter and full year 2012 as well as an update on its operations. The four quarterly results announcements give us the only opportunities to examine a company in the context of its most recent numbers. It also provides an opportunity to evaluate the company’s liquids production growth as well as its impressive collection of drilling opportunities. In this article, I will examine the company as an investment opportunity using the latest numbers and assess the impact of the U.S. natural gas market on the company.
EOG has reported net income of $570.3 million, or an EPS of $2.11 per share for the full year 2012 compared to $1.09 billion, or an EPS of $4.10 per share, for the previous full year. EOG reported a net loss of $505.0 million, or $1.88 per share for the fourth quarter in comparison to net income of $120.7 million, or $0.45 per share for the same quarter of the preceding year. Adjusted non-GAAP net income for 2012 was $1.53 billion or an EPS $5.67 per share compared to $1.01 billion or $3.79 per share for 2011.
Adjusted non-GAAP net income for the fourth quarter was $437 million, or an EPS of $1.61 per share compared to $309million, or $1.15 per share for the fourth quarter of 2011.The results for the fourth quarter include $849.4 million, net of tax ($3.13 per share) in impairment charges to Canadian natural gas assets, net losses on asset dispositions of $35.6 million, net of tax ($0.13 per share) and a non-cash net gain of $66.4 million ($42.5 million after tax, or $0.16 per share) on financial commodity derivative contracts marked to market. As a result of EOG Resources Inc (NYSE:EOG)’s higher revenue and production weighting to crude oil, adjusted non-GAAP net income per share grew by 50%, adjusted EBITDAX rose 26% and discretionary cash flow grew by 26% in comparison to the previous year.
Crude oil and condensate production in the United States increased by 46% for the full year compared to 2011. Total United States liquids production for 2012 increased by 42% year on year. For the company as a whole, crude oil and condensate production grew by 39% and total liquids production by 37% for the full year compared to the previous year. Mark G. Papa, EOG’s Chairman and Chief Executive Officer, said, “We accomplished all of EOG’s 2012 goals. We generated high margin organic crude oil production growth and delivered excellent year-over-year increases in EOG’s financial metrics. We maintained our net-debt-to-total cap ratio below 30 percent and recorded strong crude oil reserve replacement rates at attractive finding costs, In addition, we added the Delaware Basin Wolfcamp, a promising new liquids resource play to our portfolio and significantly increased the potential recoverable reserves of our largest and highest rate of return asset, the South Texas Eagle Ford.”
Total capital expenditure for the year was approximately $7.5 billion while cash realizations from asset sales were approximately $1.3 billion. As at December 31, 2012, total debt outstanding was $6.3 billion making for a debt-to-total capitalization ratio of 32%. Taking into account cash on the balance sheet of $876 million at the end of the fourth quarter, Net debt was $5,436 million after taking into account cash and cash equivalents of $876 million making for a net debt-to-total capitalization ratio of 29%.
I would regard the financial performance for the fourth quarter as satisfactory because the negative effects of the depressed natural gas market in the United States have been offset by the increased focus on crude oil and liquid production.
The company said that its outstanding performance in crude oil production in 2012 was substantially driven by drilling and completion activity in the Eagle Ford where305 net wells were drilled and completed with an average of 23 drilling rigs. In the North Dakota Bakken/Three Forks, positive results from downspaced drilling tests as well as important modifications to techniques of drilling and completion techniques, further helped crude oil production growth.
Breakthroughs in geologic modeling in the Leonard/Wolfcamp horizontal shale plays in southeastern New Mexico and West Texas also contributed. The company made progress in increasing the amount of crude oil recoverable from both its Eagle Ford and Bakken resources. In the Eagle Ford, it increased the estimated recoverable potential reserves by 38% from 1.6 billion barrels of oil equivalent (BnBoe) to 2.2 BnBoe. At the levels of present operations, the company has a 12-year drilling inventory in the Eagle Ford.
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EOG’s liquids rich production growth as well as its large inventory of drilling opportunities has to be balanced against the fact that its production and reserves base are still weighted in favor of gas. Unless the outlook for natural gas prices in the United States improves significantly, the stock is likely to perform only in line with the market as a whole. I rate the stock as a “Hold.”
The article Natural Gas Prices Holding This Player Back originally appeared on Fool.com and is written by Jordo Bivona.
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