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EOG Resources’ Free Cash Flows Turn Negative Again

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EOG Resources’ free cash flows

In this part, we’ll analyze how EOG Resources’ (EOG) operating cash flows trended over the past few quarters. We’ll also discuss how its free cash flows were affected given its capex (capital expenditures). We discussed EOG Resources’ capex in the last part of this series.

As we note in the table above, EOG Resources’ CFO (cash flow from operating activities) rose steadily until the end of 2014. CFO turned sharply lower in 1Q15 as crude oil prices saw their sharpest fall during this period. Since crude oil prices fell 36% in 1Q15 from the previous quarter, the company’s operating cash flow fell 54%. EOG’s net income fell 138% to a loss in the quarter.

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EOG Resources’ historic free cash flows

From 1Q12 to 3Q14, average crude oil price levels didn’t change much, while EOG Resources’ crude oil production more than doubled. So, its net income improved substantially by 240%. Its operating cash flows also rose by 116% during this period. This reflects higher wellhead income and favorable changes in working capital, partially offset by higher operating expenses. Capex remaining nearly the same, this led EOG Resources’ free cash flows to improve from -$972 million in 1Q12 to $224 million in 3Q14.

In comparison, Concho Resources’ (CXO) free cash flows fell 58%, while Newfield Exploration’s (NFX) free cash flows fell 33% in 1Q15 from the levels in 4Q14. Pioneer Natural Resources’ (PXD) free cash flows fell 17% from 4Q14 to 1Q15. Lower capital expenditure by the upstream companies will also negatively affect oil and gas equipment and service providers like Exterran Holdings (EXH) and RPC (RES). Concho Resources (CXO) accounts for 1.5% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

EOG Resources’ free cash flow in 1Q15

Despite a 23% fall in 1Q15 capex, EOG Resources’ free cash flow crashed. It was -$585 million in 1Q15 versus $104 million in free cash flow for 4Q14. Free cash flow is defined as “operating cash flows less capital expenditures.” It represents the cash that a company is left with after spending what’s required to maintain or expand its asset base.

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