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Analyzing EOG Resources’ Operating Level Profitability

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Jun. 30 2015, Updated 6:06 p.m. ET

EOG Resources’ EBITDAX

Now, we’ll discuss the factors that affected EOG Resources’ (EOG) operating level profitability. We’ll do this through EOG Resources’ EBITDAX. This is EOG Resources’ earnings before interest expenses, income taxes, depreciation, depletion and amortization, exploration costs, dry hole costs, impairments, and additional items.

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What affected EOG Resources’ EBITDAX?

In 1Q15, EOG Resources’ adjusted EBITDAX fell 58% to $747.7 million from $1.79 billion a quarter ago. Compared to the figure last year, the fall amounted to 68%. The main reason for the fall was the falling revenue, as we discussed earlier in this series.

In the past year to 1Q15, depreciation, depletion, and amortization costs fell 3.6%, while exploration costs and impairment charges fell 18% and 39%, respectively. In contrast, dry hole costs rose 75% during this period. Dry hole costs refer to the expenditure incurred on a well where no significant oil reserves are found. In 2014, EOG spent more than 50% of its total dry hole costs in the US alone.

It should be noted that EOG Resources’ adjusted EBITDAX reflects net cash received or cash paid towards settlements of commodity derivative contracts. The adjustments are made by eliminating the unrealized mark-to-market gains or losses from these transactions and eliminating the net gains on asset dispositions.

EBITDAX trend

EOG Resources’ adjusted EBITDAX rose steadily from 1Q12 to 3Q14, until the crude oil price slump started affecting its operating level performance. During these 11 quarters, it rose 64%.

Suncor Energy (SU), another large market cap upstream energy company, saw its adjusted EBITDAX fall 54% from 1Q14 to 1Q15. Marathon Oil (MRO) and LINN Energy’s (LINE) adjusted EBITDAX fell 59% and 173%, respectively, during the same period. EOG Resources (EOG) accounts for 3.95% of the Energy Select Sector SPDR ETF (XLE) and 2.97% of the iShares U.S. Energy ETF (IYE).

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