EOG Resources, Inc. — Q1 2015 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2015, compared with Q1 2014. EOG is an independent oil and gas producer focused primarily on U.S. unconventional oil and liquids-rich plays. The filing reflects the 2014 divestiture of substantially all Canadian assets.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / comparator |
|---|---|---|
| Net operating revenues | $2.319 billion | $4.084 billion |
| Operating income (loss) | $(173) million | $1.084 billion |
| Net income (loss) | $(170) million; $(0.31) per diluted share | $661 million; $1.21 per diluted share |
| Operating margin | Approximately (7.5%) | Approximately 26.6% |
| Cash provided by operating activities | $961 million | $2.268 billion |
| Cash used in investing activities | $1.804 billion | $1.824 billion |
| Cash and cash equivalents | $2.127 billion | $2.087 billion at Dec. 31, 2014 |
| Debt | $6.900 billion carrying value; $6.890 billion principal | $5.910 billion carrying value at Dec. 31, 2014 |
| Current assets / current liabilities | $4.793 billion / $3.095 billion | $5.416 billion / $3.384 billion at Dec. 31, 2014 |
| Dividends declared per share | $0.1675 | $0.1250 |
Cash capital additions to oil and gas properties and other property, plant and equipment totaled approximately $1.546 billion. Operating cash flow less those cash additions was approximately $(585) million, a simple free-cash-flow proxy. The reported debt-to-total-capitalization ratio was 28%, versus 25% at year-end 2014. EOG reported no borrowings or letters of credit under its $2.0 billion revolving credit agreement at quarter-end.
Material changes versus Q1 2014
- Revenue fell 43%; wellhead revenue declined 48%, primarily because of sharply lower realized commodity prices.
- Composite realized prices fell: crude oil and condensate to $46.68/bbl from $100.25; NGLs to $16.08/bbl from $38.20; and natural gas to $2.51/Mcf from $4.58.
- Total production rose to 589.5 thousand barrels of oil equivalent per day from 563.5 thousand. U.S. crude oil and condensate production increased 12% to 298.6 thousand bbl/day; liquids were about 71% of U.S. production by volume.
- Net mark-to-market derivative results improved to a $76 million gain from a $156 million loss; cash settlements produced $368 million in Q1 2015 versus $34 million of payments in Q1 2014.
- Operating expenses declined $507 million to $2.492 billion, while cash from operations dropped $1.307 billion. Capital expenditures were lower, but remained substantial.
- The company issued $1.0 billion of senior notes in March 2015—$500 million at 3.15% due 2025 and $500 million at 3.90% due 2035—using approximately $990 million of net proceeds for general corporate purposes.
Outlook, commentary and risks
- Management expected 2015 crude oil, condensate and NGL production to be relatively flat versus 2014, reflecting the low commodity-price environment. The 2015 capital expenditure estimate was $4.9–$5.1 billion, excluding acquisitions, with most spending directed to U.S. crude oil drilling.
- EOG planned to focus on drilling and completion efficiencies, recovery improvements and cost reductions, and expected to build an inventory of uncompleted wells pending a commodity-price recovery. It retained flexibility to adjust spending.
- Management anticipated first production from the U.K. Conwy field in Q3 2015. It was evaluating options for its Argentina investment. Planned 2015 Trinidad activity included two net wells drilled and two net wells completed.
- Derivatives are not designated as accounting hedges; fair-value changes affect reported earnings. Contracts included crude oil swaps at weighted average prices around $89.98–$91.22/bbl for covered 2015 periods and natural gas contracts at approximately $3.97–$4.51/MMBtu. Certain counterparties held options to extend or enter contracts, subject to the stated terms.
- Key risks include commodity prices and demand, production and reserve performance, transportation and service availability and costs, financing access, regulation, foreign exchange, and counterparty credit. Pending ordinary-course lawsuits and claims were not expected by management to have a material adverse effect; outcomes remain uncertain.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The interim statements are unaudited and Q1 results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the assumed flat 2015 liquids-production outlook and $4.9–$5.1 billion capital budget were achieved, and how price conditions affected subsequent plans.
- The durability of operating cash flow and liquidity given lower realized prices, negative free-cash-flow proxy, and increased debt.
- The realized cash and earnings effects of commodity derivatives, including counterparty extension options and collateral or credit-rating provisions.
- Production growth, well economics and cost reductions in the Eagle Ford, Permian and other core U.S. areas, alongside the impact of the Canadian divestiture on comparisons.
- Progress and capital requirements for Conwy and other international projects, and any material developments in litigation or contingencies.