EOG Resources, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparisons are with Q1 2013 unless noted. Amounts are in U.S. dollars. EOG is an independent oil and natural gas producer operating in the U.S., Canada, Trinidad and other international markets.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Net operating revenues | $4.084 billion | $3.357 billion; up 22% |
| Operating income | $1.084 billion | $833 million; up 30% |
| Net income | $661 million | $495 million; up 34% |
| Diluted EPS | $1.21 | $0.91 |
| Operating margin | About 26.5% | About 24.8% |
| Net cash from operating activities | $2.268 billion | $1.425 billion |
| Cash and cash equivalents | $1.667 billion | $1.318 billion at December 31, 2013 |
| Total debt | About $5.910 billion | About $5.913 billion at December 31, 2013 |
| Debt-to-total-capitalization ratio | 27% | 28% at December 31, 2013 |
Cash used in investing was $1.824 billion, including $1.737 billion of additions to oil and gas properties and $166 million for other property and equipment. Operating cash flow less those additions was approximately $365 million. Cash used in financing was $90 million. The current ratio was approximately 1.42, based on reported current assets and liabilities.
Material changes and operating trends
- Wellhead revenue rose 35% to $3.200 billion. Total production increased about 18%, to 563.5 thousand barrels of oil equivalent per day. Liquids represented about 68% of North American production, versus 59% a year earlier.
- Crude oil and condensate production increased 42% to 266.5 thousand barrels per day, while the composite realized price decreased 5% to $100.25 per barrel. NGL production increased 20% and its composite price rose 20%; the composite natural gas price rose 38%, while gas volumes declined about 2%.
- Net losses on mark-to-market commodity derivatives were $156 million, versus $105 million. EOG also paid $34 million net on derivative settlements, compared with $67 million net received in Q1 2013.
- Operating expenses increased $476 million to $2.999 billion. DD&A rose $100 million, impairments rose $60 million to $113 million, and taxes other than income increased $61 million. Despite higher production, selected per-unit costs reported by EOG totaled $32.46 per Boe versus $33.16, excluding several expense categories.
- U.S. operations generated $1.041 billion of operating income, up from $691 million. Canada recorded a $10 million operating loss, compared with $71 million of operating income a year earlier; Trinidad operating income was $74 million, down from $81 million.
Outlook, capital allocation and notable items
- EOG estimated 2014 exploration, development and other property/equipment expenditures of $8.1 billion to $8.3 billion, excluding acquisitions. Most spending was planned for U.S. crude oil and, to a lesser extent, liquids-rich drilling. Q1 total expenditures were $1.988 billion.
- Management expected 2014 crude oil, condensate and NGL production to increase in both volume and share of total company production compared with 2013. No specific full-year production-growth percentage is stated in the supplied filing text.
- EOG issued $500 million of 2.45% senior notes due 2020, receiving approximately $496 million net proceeds. It repaid $350 million of floating-rate notes and $150 million of subsidiary debt at maturity. No borrowings or letters of credit were outstanding under its $2.0 billion revolving credit agreement at quarter-end.
- The Board increased the quarterly dividend from $0.09375 to $0.125 per share, effective with the April 2014 payment. A two-for-one stock split was paid March 31, 2014; reported share and per-share figures were restated for the split.
- Proved oil and gas properties with a $94 million carrying value were written down to $20 million, generating $74 million of pretax impairment charges. EOG reported a net $215 million liability for crude oil and natural gas derivatives at March 31. Derivatives are marked to market through earnings, and certain counterparty agreements can require collateral or accelerated settlement under specified conditions.
- Management said ordinary-course litigation and claims were not expected to have a material adverse effect, while noting outcomes cannot be predicted. Key disclosed risks include commodity prices, development and reserve performance, transportation and infrastructure availability and costs, regulation, operating costs, financing access, and political and environmental uncertainties.
- Development plans included three net Trinidad wells in 2014, anticipated first production from the U.K. Conwy field in late 2014, and further drilling in Argentina and China. These are expectations, not assured outcomes.
Important facts for investors to verify
- Whether production growth, realized prices and liquids mix support the reported revenue and earnings improvement, particularly as crude oil prices were lower year over year.
- Whether the $8.1–$8.3 billion 2014 spending plan can be funded while maintaining balance-sheet targets and positive cash generation.
- The scale and earnings/cash-flow effects of derivative positions, including mark-to-market losses, settlement cash flows, extension options and the $215 million net liability.
- The nature and potential future impact of the $113 million impairment expense, including the $74 million proved-property write-down.
- Whether the Canadian operating loss, increased operating costs and higher transportation expenses persist or improve.
- Quarterly results are unaudited and, as the filing cautions, are not necessarily indicative of full-year results.