EOG Resources, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited. EOG is an independent oil and gas producer operating primarily in the United States, with international operations including Trinidad and the United Kingdom. Dollar amounts below are in millions unless otherwise noted.
Financial and operating performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Net operating revenues | $1,354 | $2,319 |
| Operating loss | $(638) | $(173) |
| Net loss | $(472) | $(170) |
| Diluted loss per share | $(0.86) | $(0.31) |
| Cash provided by operating activities | $292 | $961 |
| Cash used in investing activities | $(569) | $(1,804) |
| Cash provided by financing activities | $226 | $893 |
| Cash and equivalents, quarter-end | $668 | $719 at Dec. 31, 2015 |
| Total debt, current and long-term | $6,986 | $6,655 at Dec. 31, 2015 |
- Crude oil and condensate, NGL, and natural gas sales totaled about $995 million, down 40% year over year. Composite realized prices fell: oil to $30.85/bbl from $46.68, NGLs to $10.41/bbl from $16.08, and natural gas to $1.50/Mcf from $2.51.
- Total production averaged 549.9 thousand barrels of oil equivalent per day, down about 7% from 589.5 thousand. U.S. production was 483.6 thousand Boe/d, versus 527.1 thousand.
- Operating expenses declined $500 million to $1,992 million, but DD&A remained high at $929 million. DD&A per Boe for oil and gas properties rose to $17.99 from $16.62, primarily reflecting reserve revisions associated with lower prices. Lease and well cost per Boe declined to $4.81 from $6.81.
- Operating cash flow fell $669 million year over year, principally because of lower wellhead revenue and reduced derivative settlement receipts. Cash declined $50 million during the quarter.
- Quarter-end debt-to-total-capitalization was 36%, versus 34% at year-end 2015. EOG had no commercial paper outstanding and no borrowings or letters of credit under its $2.0 billion revolving credit facility.
Changes, financing, and unusual items
- Revenue fell 42% year over year. Management attributed the decline mainly to lower commodity prices and, for oil and gas, lower production volumes. Net loss widened to $472 million from $170 million.
- Q1 operating cash flow was $292 million against $613 million of total expenditures reported by EOG, including exploration and development and other property, plant, and equipment expenditures.
- EOG issued $750 million of 4.15% senior notes due 2026 and $250 million of 5.10% senior notes due 2036 in January. Proceeds of about $991 million helped repay $400 million of 2.50% notes at maturity in February and fund general corporate purposes, including capital expenditures.
- Mark-to-market commodity derivative gains were $5 million, compared with $76 million in Q1 2015; cash settlements received were $18 million, versus $368 million. At March 31, derivative assets were $4 million, with no derivative liabilities reported.
- Impairments were $72 million, compared with $69 million. The income-tax benefit was $239 million, compared with $67 million; the reported effective tax rate was 34%, versus 28%.
- The quarterly dividend declared was $0.1675 per share, unchanged from the prior-year quarter. Treasury-share activity reflected employee tax withholding and stock-plan transactions; EOG reported no purchases under its board-authorized repurchase program.
Outlook, risks, and contingencies
- EOG forecast 2016 capital expenditures of approximately $2.4 billion to $2.6 billion, excluding acquisitions, with most directed to U.S. crude oil drilling. Q1 total expenditures were $613 million, down from $1.595 billion a year earlier.
- Based on its 2016 drilling plan and low-price environment, management expected crude oil, condensate, and NGL production to decline modestly from 2015. It cited drilling and completion efficiencies and lower service costs as factors reducing costs.
- Management emphasized uncertainty in commodity prices and their effect on operating cash flow and financial position. Key disclosed risks also include reserve and development outcomes, transportation and service availability and costs, regulation, counterparties’ ability to perform, and access to capital markets.
- As of May 5, EOG disclosed oil derivative volumes of 128,000 bbl/d for May–June at a weighted average price of $42.56/bbl and natural gas volumes of 60,000 MMBtu/d for June–August at $2.49/MMBtu. These contracts provide only partial price exposure protection.
- Routine lawsuits and claims were pending; management said their resolution was not expected to have a material adverse effect, while noting outcomes could not be predicted. EOG reported no material changes in market-risk disclosures and said disclosure controls were effective.
Important facts for investors to verify
- How sustained commodity prices and production changes affect realized revenue, operating cash flow, and the ability to fund the capital budget and dividend.
- Whether planned cost efficiencies offset higher DD&A per Boe and the effects of reserve revisions.
- Debt levels, interest costs, refinancing needs, and continued access to the revolving facility and capital markets.
- The extent and duration of derivative coverage and the impact of mark-to-market accounting versus cash settlements.
- Progress toward the 2016 capital plan and production outlook, including developments in the Conwy project and other international investments.
- Updates on litigation, regulatory matters, and other contingencies; the filing does not quantify a probable material loss.