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Is EOG Resources Adapting to the Low Oil Price Environment?

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Nov. 12 2015, Updated 3:07 p.m. ET

EOG Resources’ revenues in the first nine months of 2015

After analyzing EOG Resources’ (EOG) 3Q15 performance, we will now discuss the company’s year-to-date (or YTD) revenues and earnings. EOG recorded $7.0 billion in net operating revenues for the first nine months of 2015, down 48% from $13.4 billion recorded in the corresponding period of 2014. EOG’s average price realization and energy production volume in the first nine months of 2015 fell compared to the corresponding period in 2014.

EOG’s revenues from crude oil and condensates in the first nine months of 2015 fell 49% over the corresponding period in 2014 while natural gas liquids (or NGLs) revenues fell 59% during the same period. The company’s revenues from natural gas fell 44%.

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What has affected EOG Resources’ net income?

EOG Resources’ net income in the first nine months of 2015 saw a loss of $4.2 billion compared to a $2.5 billion net profit a year ago. Net income margin saw a negative figure of 61% in the first nine months of 2015 versus a positive 18.5% margin in the corresponding period in 2014. The sharp decline in earnings resulted from a massive $6.3 billion impairment charge in 3Q15 due to the fall in crude oil prices.

Lower sales price realization and a decreased energy sales volume affected EOG’s income in the first nine months of 2015. EOG’s average crude oil and condensate price realization in the first nine months of 2015 decreased 50% while NGLs and natural gas price realizations fell 57% and 40%, respectively, compared to the corresponding period in 2014.

Overall, EOG Resources’ total production volume fell by 2.8% in the first nine months of 2015 compared to the corresponding period in 2014. However, crude oil and condensates production actually recorded a 1% increase, which was more than offset by a 7.3% fall in natural gas production.

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Compared to EOG Resources’ $4.2 billion net loss in the first nine months of 2015, Laredo Petroleum (LPI) recorded $1.2 billion in net loss during the same period. Laredo Petroleum, an Oklahoma-based energy upstream company, is EOG’s much smaller peer. Its current market capitalization is $2.6 billion versus EOG’s $47 billion. EOG Resources makes up 1.1% of the Vanguard Dividend Appreciation ETF (VIG).

Management’s perspective on crude price and returns

EOG’s management believes lower supply in the future will help push prices up. It also thinks that EOG’s drilled but uncompleted (or DUC) well inventory and lower capex will let it operate at a higher rate of return. Billy Helms, EOG’s executive vice president, commented in the 3Q15 conference call, “EOG is quickly adapting to be successful in a low oil price environment. We’re not depending on a rebound to high oil prices; instead we’re making the most of the current price environment by focusing on improving fundamentals and building future potential.”

Next, we will discuss Wall Street’s forecasts for EOG Resources.

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