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EOG Resources’ Capital Expenditure May Decline in 2015

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EOG Resources’ capex

Although EOG Resources’ (EOG) revenue and net income slumped in recent quarters after the fall in crude oil prices, the company held its capex (capital expenditure) relatively steady compared to the levels over the past ten quarters. However, in 1Q15, the capex fell 23% to $1.54 billion from the level in 4Q14. The 1Q15 capex also represents a 25% fall over 1Q12.

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Peer comparison

In comparison, Newfield Exploration’s (NFX) capex fell 6%, Ultra Petroleum’s (UPL) capex rose 6%, and Pioneer Natural Resources’ (PXD) capex remained almost unchanged in 1Q15 YoY (year-over-year). Ultra Petroleum accounts for 1.2% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Eventually, lower upstream capex will negatively affect midstream energy MLPs (master limited partnerships) like Enterprise Products Partners (EPD) and Targa Resources Partners (NGLS).

What was EOG Resources up to in 1Q15?

  • In the Eagle Ford in South Texas, EOG Resources planned high-density completions for about 95% of its Eagle Ford wells in 2015. This is expected to improve the well productivity and lower falling rates.
  • In the Delaware Basin in Texas, EOG Resources focused on the Second Bone Spring Sand play to improve well productivity and cost reduction.
  • In North Dakota, EOG Resources focused its activity on the Parshall Core acreage in the Bakken play. Continuous investment in efficiency improvement resulted in a 14% lower average well cost in 1Q15 compared to the level in 2014.

EOG Resources’ 2015 capex guidance

In 2015, EOG Resources plans to cut down its capex by 40% over the 2014 level. In 2014, it spent ~$7.5 billion on capex. The company wants to keep crude oil production unchanged until crude oil prices rise again. In the process, the company plans to defer a significant number of well completions through 3Q15.

According to its 1Q15 earnings press release, “If oil prices recover and stabilize at the $65 level, EOG is prepared to resume strong double-digit oil growth in 2016 with balanced capital spending and discretionary cash flow.”

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