Weekly Oil and Gas Notes: EOG Resources’ Earnings and BP’s Oil Spill Setback
Oil and gas stocks fell slightly this week as benchmark crude oil prices continued to remain weak on rising crude oil inventories in the U.S. The U.S. Energy Information Administration (EIA) reported yesterday that commercial crude oil inventories in the U.S. rose by 7.7 million barrels last week — well above the consensus estimate of 3.2 million barrels — to over 425 million barrels. The continued inventory build up in the U.S., despite the recent decline in oil prices, is a cause of concern for oil-linked equities, as it could prolong the recovery in oil prices. The price of the front-month Brent crude oil futures contract on the ICE declined by around 1.8% this week and is currently trading around $60.20 per barrel. The NYSE Arca Oil & Gas Index (XOI) fell by almost 2.5% this week. [1]
Below, we provide an update on some of the key events that occurred this week related to the oil and gas companies we cover.
EOG Resources’ Earnings
EOG Resources (NYSE:EOG) announced its 2014 fourth quarter and full-year earnings this week. On expected lines, the company posted an impressive growth in crude oil production over last year, primarily driven by increased development of its acreage in the Eagle Ford shale. However, lower oil prices more than offset the impact of higher volumes on its net earnings per share (EPS) adjusted for one-time items, which declined by 21% year-on-year to $0.79. For the full year, however, the company’s non-GAAP EPS increased by 20% over 2013. This year, EOG Resources plans to slow down its primary growth engine significantly in response to the changed crude oil price environment, as an attempt to maximize its returns in the long term. The company expects its 2015 full-year crude oil production to be flat, as it defers the completion of wells until global crude oil prices recover significantly to reflect the adjusted demand-supply scenario. (See: EOG Resources Revised To $80 Per Share On Lower Oil Prices, Slower Production Growth)
- We currently have an $80/share price estimate for EOG Resources, which is around 12% below its current market price. The company’s share price decreased by around 6.1% this week.
See Our Complete Analysis For EOG Resources
BP’s Oil Spill Setback
In the latest setback for BP Plc. (NYSE:BP) in its effort to curb costs associated with the 2010 Deepwater Horizon incident, a U.S. federal judge, Carl Barbier, rejected the company’s appeal to reduce the maximum civil fine it could face for its role in the deadly incident. The judge agreed with federal government lawyers that BP should face fines of up to $4,300 per barrel of oil spilled. BP had sought a $3,000 per barrel cap on fines, the amount set by the Clean Water Act for gross negligence in 1990. However, federal prosecutors argued that those amounts need to be adjusted for inflation and the judge agreed. The same judge previously ruled that BP’s conduct was grossly negligent in the lead-up to the incident that led to 3.19 million barrels of oil being spilled into the Gulf of Mexico. This means that the company could face fines of up to $13.7 billion under the Clean Water Act, while it has currently provisioned for just $3.5 billion to that end. [2]
- We currently have a $47/share price estimate for BP, which is around 15% above its current market price. The company’s share price decreased by around 1.9% this week.
See Our Complete Analysis For BP
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Notes:- Oil Prices Fall Again As Inventories Build, reuters.com [↩]
- BP Loses Bid To Cut Maximum $13.7 Billion Gulf Spill Fine, reuters.com [↩]