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EOG Resources’ Questionable Cost Efficiency in 2015

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EOG’s 1H15 revenues

Now that we’ve analyzed the 2Q15 performance of EOG Resources (EOG) in this series’s previous articles, we will now discuss its YTD, or year-to-date, revenues and earnings. EOG recorded $4.78 billion net operating revenues for 1H15, down 42% from the $8.27 billion recorded in 1H14. EOG’s 1H15 average price realization as well as energy production volume likewise declined compared to average 1H14 levels. In 1H15, the company’s US upstream E&P (Exploration and Production) operations slowed down. These reductions led to lower upstream revenues.

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Revenues from crude oil account for the majority of EOG’s total revenues. EOG’s 1H15 revenues from crude oil and condensates declined 46% over 1H14 while NGL (natural gas liquids) revenues declined 56% during the same period. Year over year, EOG’s US revenues declined by 42% in 1H15, compared to a 53% fall in combined revenues from its remaining international operations.

Operating costs per BOE improved in 1H15

EOG’s cost efficiency has improved in 2015. Its lease and well costs per Boe (barrel of oil equivalent) decreased 2% in 1H15 over 1H14. Over the same period, its transportation costs decreased 9%, while depletion, depreciation, and amortization costs decreased 6% on a per-Boe basis.

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What affected EOG’s YTD net income?

EOG’s year-to-date net income swung to a loss of $164.5 million, compared to $1.37 billion net profit a year ago. Its net income margin cut a negative figure of -3.4% in 1H15 versus a positive 16.5% margin in 1H14.

Lower sales price realization and decreased energy sales volume affected EOG’s 1H15 income. EOG’s 1H15 average crude oil and condensate price realization decreased 49%, while NGL and natural gas price realizations declined 56% and 43%, respectively, over 1H14.

Overall, EOG’s total production volume decreased by a marginal 0.4% in 1H15 compared to 1H14. On a product-wise breakdown, crude oil and condensate production actually recorded a 5.4% increase, though this rise was widely offset by a 7.5% natural gas production decrease.

In 1H15, EOG’s EBITDA (earnings before interest, taxes, depreciation, and amortization) dropped 58% compared to a year earlier. Suncor Energy’s (SU) EBITDA declined 36% during the same period. Laredo Petroleum’s (LPI) 1H15 EBITDA turned negative compared to a $222 million EBITDA in 1H14. EOG holds 2.8% of the iShares US Energy ETF (IYE) and 1.6% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

For further discussion of EOG’s ongoing 2015 performance, please see the next article in the series/

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