EOG Resources’ net income
After discussing revenues, prices, and volumes in the previous parts of this series, we’ll analyze EOG Resources’ (EOG) net income trends. In the past 13 quarters, EOG Resources’ net income followed a rising trend until 3Q14, barring a loss in 4Q12. Since then, the net income has fallen considerably in 1Q15—compared to the levels in 3Q14.
In 1Q15, the company recorded a $169.7 million adjusted net loss. The adjusted net income includes $187 million post-tax effect on commodity derivatives contracts and net gains on asset dispositions.
In 4Q14, net income fell 60% from the 3Q14 level. EOG Resources’ 3Q14 net income of $1.1 billion was the highest it recorded in the past 13 quarters. In 4Q12, EOG Resources recorded a $505 million net loss due to a $1.02 billion impairment charge related to certain North American assets as a result of falling commodity prices.
Earnings fell from $1.21 per share in 1Q14 to a loss of $0.31 per share in 1Q15. In comparison, Ultra Petroleum’s (UPL) net income fell 75% in 1Q15 over 4Q14, while Newfield Exploration (NFX) recorded a $480 million net loss in 1Q15. EOG Resources accounts for 3.95% of the Energy Select Sector SPDR ETF (XLE). It also accounts for 0.26% of the SPDR S&P 500 ETF Trust (SPY).
What drives the net income?
Lower revenue, driven by lower energy prices, was the main reason that net income fell in 1Q15. Read the previous parts in this series for a detailed discussion on EOG Resources’ revenue.
On the cost side, lease and well expense costs rose 7.4% in 1Q15 over 1Q14 on a per Boe (barrel of oil equivalent) basis. The DD&A (depreciation, depletion, and amortization) cost was EOG Resources’ largest cost head. It fell 8% in 1Q15 over 1Q14. Overall, total costs on a per Boe basis fell 4.7% during the same period.
The net income margin, or net income as percentage of revenue, fell sharply to -8% in 1Q15. In comparison, the net income margin was 16% last year. So, although costs fell 4.7%, revenue fell faster by 47%.
2015 cost guidance
In 2015, EOG Resources expects lease and well costs to fall ~2%, while the transportation costs and DD&A expenses are expected to rise 3% each on a per Boe basis.