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Will EOG Resources’ Expected 3Q15 Earnings Crash?

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EOG Resources’ quarterly earnings

We discussed EOG Resources’ (EOG) revenues versus analysts’ estimates earlier. In this article, we’ll discuss EOG Resources’ expected 3Q15 EPS (earnings per share) estimates. In 3Q15, EOG’s earnings may fall steeply. Its 3Q15 adjusted EPS is expected to be a negative $0.285 versus a positive $0.28 for 2Q15 and $1.31 recorded a year earlier.

Starting from 1Q13, EOG Resources’ earnings had been mostly rising. They held strong until 2Q14. Then, led by the crude oil price fall, they started falling off. In 2Q15, EOG’s adjusted EPS improved significantly from a quarter earlier. However, between 2Q14 and 2Q15, its adjusted EPS had fallen 81%.

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EOG’s earnings: Adjusted versus estimates

As noted in the graph above, EOG Resources’ adjusted EPS beat estimates in some of the past quarters. On an average, adjusted EPS exceeded the consensus EPS by 12% in the past ten quarters. In 2Q15, adjusted EPS outperformed the analysts’ expectations. EOG’s adjusted EPS was $0.28 versus analysts’ expected $0.10. EOG is 1.7% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Investors may note that one-time items like losses on account of derivatives contracts and impairment charges affected EOG’s 2Q15 results. In 2Q15, EOG Resources recorded a $48 million net loss related to mark-to-market commodity derivative contracts. That loss amounted to $229 million in 2Q14.

In comparison, in 2Q15, Parsley Energy (PE) recorded $17.7 million net loss related to mark-to-market commodity derivative contracts. In 2Q14, that loss amounted to $14.5 million for the company. Parsley Energy, EOG’s much smaller upstream peer, is based in the Permian Basin. In 2Q15, Parsley Energy recorded $19.1 million net loss versus EOG’s $5.2 million net income in 2Q15.

What are 3Q15’s projected costs?

EOG Resources has been improving well productivity and reducing completed well and operating costs through techniques such as high-density completion designs in combination with improved wellbore placement. However, the company estimated that some of its primary cost heads may still rise in 3Q15 from 2Q15. Exploration, dry hole and impairment expenses, and general and administrative expenses are expected to rise. On the other hand, gathering and processing expenses and net interest expenses may fall or remain the same. We’ll discuss Wall Street’s forecasts for EOG Resources in the following part.

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