EOG RESOURCES INC annual report, FY2013

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EOG Resources, Inc. — FY2013 Form 10-K

Reporting period: Fiscal year ended December 31, 2013. This is an annual report, not a standalone Q4 filing; selected quarterly results are summarized below. EOG explores, develops and produces oil, natural gas liquids (NGLs) and natural gas, primarily in the United States. About 94% of year-end proved reserves were in the U.S.

Financial and operating performance

  • Revenue: $14.49 billion, up 24% from $11.68 billion in 2012. Wellhead hydrocarbon revenue rose 35% to $10.76 billion; oil and condensate represented 84% of wellhead revenue.
  • Profit: Operating income was $3.68 billion versus $1.48 billion; net income was $2.20 billion versus $570 million. Diluted EPS was $8.04 versus $2.11. Operating margin was approximately 25.4% (12.7% in 2012), and net margin approximately 15.2% (4.9% in 2012).
  • Q4: Revenue was $3.75 billion versus $3.01 billion in Q4 2012. Operating income was $980 million versus an operating loss of $378 million; net income was $580 million versus a net loss of $505 million.
  • Production and realized prices: Total production averaged 510.1 thousand barrels of oil equivalent per day, up 9% year over year. Oil and condensate volumes rose to 220.4 thousand barrels per day from 157.9; NGLs rose to 65.2 thousand barrels per day from 55.9; natural gas volumes declined to 1,347 MMcfd from 1,516. Composite realized oil price increased 6% to $103.20/Bbl, NGL price fell 8% to $32.55/Bbl, and gas price rose 21% to $3.42/Mcf.
  • Cash flow and investment: Operating cash flow was $7.33 billion, up from $5.24 billion. Investing cash outflow was $6.31 billion. Total reported expenditures were $7.36 billion; asset-sale proceeds were $761 million. Cash and equivalents ended the year at $1.32 billion.
  • Debt and liquidity: Debt principal totaled $5.89 billion, down $400 million; debt-to-total capitalization improved to 28% from 32%. The $2.0 billion revolving credit facility was undrawn at year-end, as was commercial paper. Net debt, using reported year-end cash, was approximately $4.57 billion.
  • Reserves: Proved reserves increased 308 MMBoe to 2,119 MMBoe. Reserve additions were led by U.S. drilling and technical evaluation, particularly in the Eagle Ford, Bakken, Permian and Barnett Combo plays.

Material changes versus 2012

  • Higher oil production and prices, plus improved natural gas prices, supported the revenue increase; natural gas volumes fell and NGL prices remained weaker.
  • Net income improved substantially in part because impairments fell to $287 million from $1.27 billion. Q4 2012 included approximately $1.02 billion of pretax impairments and a $135 million tax provision related to Canadian deferred tax valuation allowances.
  • Commodity-derivative mark-to-market results shifted from a $394 million gain in 2012 to a $166 million loss in 2013. 2013 settlements generated $116 million of net cash receipts, compared with $711 million in 2012.
  • Transportation costs rose to $853 million from $601 million, while DD&A increased to $3.60 billion from $3.17 billion. The effective tax rate declined to 36% from 55%, primarily reflecting the absence of certain 2012 Canadian losses and valuation allowances.

Outlook, risks and unusual items

  • 2014 outlook: Management expected total production to increase approximately 11.5%, liquids production 24% (oil and condensate 27%; NGLs 12%), and North American natural gas production to decline 6%. Planned capital expenditures were $8.1–$8.3 billion, excluding acquisitions, focused mainly on U.S. oil drilling. Plans included about 520 net Eagle Ford wells.
  • Commodity exposure: Management estimated that a $1/Bbl change in oil and associated NGL pricing would change 2014 net income by about $44 million and operating cash flow by $65 million; a $0.10/Mcf change in gas price would change them by about $13 million and $19 million, respectively. Estimates include specified derivatives and assumptions.
  • Unusual developments: EOG wrote off $24.1 million of costs on the U.K. Columbus gas project, determined the Corfe field lacked proved commercial reserves, and reported unsuccessful U.K. exploratory wells. Conwy first production was anticipated in late 2014.
  • Key risks: Commodity-price volatility, drilling and reserve-estimation uncertainty, dependence on hydraulic fracturing, transportation capacity and costs, environmental and regulatory changes, operational incidents and incomplete insurance coverage, counterparty credit, and political, currency and regulatory risks in foreign operations. EOG noted substantial transportation and storage commitments and lease acreage subject to expiration if not developed or extended.
  • Management said pending ordinary-course lawsuits and claims were not expected to have a material adverse effect. The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.

Important facts for investors to verify

  1. Whether 2014 production and capital-spending targets were achieved, particularly in the Eagle Ford, Bakken and Permian.
  2. How reserve additions, revisions and development costs translate into durable production and returns; reserve estimates rely on assumptions and are not exact measures.
  3. The effect of realized commodity prices, derivative positions and derivative options on earnings and cash flow.
  4. Whether transportation commitments, operating costs and liquidity remain manageable as capital expenditures rise; review debt maturities, including 2014 obligations and subsequent repayments.
  5. Potential exposure from hydraulic-fracturing, environmental, safety and other regulatory changes, as well as foreign operations and outstanding contingencies.